sole owner 401 plan contribution limit ?

[WITAXLADY]

S corp - employs himself and wife.

He can contribute up to $19,500 + catch-up of $6,500 = $26,000

then the employer can contribute up to $25%

with the employer contribution - can the 401 amounts exceed his gross wages?

Say his wages are only $32,000 - so the 25%  is $8,000 - now = $34,000

or do his gross wages need to be at least that

I do not think so as I have other W-2's where all their wages go into their retirement..

and it has nothing to do with the employer's match..

Correct?

And he asked if he can  increase his wages for 2020 as he has until October to fund his 2020 401 to the max of $57,000?

What say you all on that one?

Thank you,

D

 

[Lion EA]

Too late to increase 2020 wages. Had to pay himself during 2020 for 2020 wages, 2020 W-2.

[Abby Normal]

14 hours ago, Lion EA said:

Too late to increase 2020 wages. Had to pay himself during 2020 for 2020 wages, 2020 W-2.

If he took distributions, you could claim a bookkeeping error and reclass those distributions as net wages. Of course there will be late payment of payroll tax penalties.

[WITAXLADY]

Thank you, D

[Catherine]

On dodge a colleague of mine has used locally is to issue a 1099-NEC to the S-corp owner who then puts it on a Sch C with his 1040.  He mainly uses it for smaller corps that frequently don't have the cash flow to reliably have a payroll - but it might work here.  As long as the owner is paying that fica tax, the service might not make too big a fuss.