401k Nonelective Contributions (profit sharing) as S-Corp

[CurtisStevens]

I'm hoping someone can help me. I'm not referring to employer-matched deferral contributions, but the nonelective contributions also referred to as profit-sharing that's limited to 25% of employee wages. Must these contributions go through Payroll or do you just pay that employee and expense it out on the 1120s? I know you do salary deferral contributions through payroll and employer-matched contributions made to their deferrals but can't find the answer on nonelective contributions.

Thanks

Curtis

[dmertz · Accepted solution]

Employer contributions are an expense of the S corp and have nothing to do with payroll.  They are not wages and are not paid to the employee.  They are not reported on the employee's W-2 or tax return, they are only reported on the S corp's tax return.  A 25%-of-compensation profit-sharing contribution would be made in lieu of matching contributions, not in addition to matching contributions.  The S-corp can't do both and must do the same for all eligible participants in the plan.

[gsrice]

...is the s-corp. employer's 401k contribution limit of 25% on gross salary or taxable salary?

Example: employee's salary is 60K, with 20K contributions to a 401k, for a taxable salary of 40K. Is the employer limit 60K or 40K?

[dmertz]

25% of the employee's compensation, 25% of $60k in this case.