Solo 401k Income Determination

[G2R]

Hello, 

I've combed through the IRS publications on retirement plans and I can't seem to get a concrete answer. 

• My client is the sole employee in his Sub-S.
• He has a solo 401k through that business. 
• He has health insurance that he pays for though the business.  Those premiums paid are included in his W-2, box 1 wages.  

The EMPLOYER match contribution for the solo 401k contribution can be up to 25% of wages.  Are the eligible wages, salary wages only, or do they also include the health insurance premiums?

As an example:

• Wages are $50,000 for the year, Health Insurance Premiums are $10,000. 
• Box 1 on the W-2 shows $60,000.  Box 3 & 5 show $50,000. 

Is the company allowed to contribute $12,500 in ER contribution, or $15,000?  Or in other words, is it the Box 1 wages, or box 3/5?

Thanks!   

[Richcpaman]

My pension Administrators, when calculating the match, take what is box #1, so that would include the HI.

Rich

[jklcpa]

Agree with Rich, in general.  Be careful using box 1 straight off the W-2 if there are other types of deferrals like to cafeteria plans though.  The technical answer is it may depend on how the plan defines compensation as it relates to code sec 3401.

[Medlin Software, Dennis]

>2% S Corp insurance is wages, and part of the "remuneration".  Also is subject to all taxes and deductions (WC, CS, etc.) unless specifically excluded (such as UI).