S corp SIMPLE plan

[imjulier]

Hey there-

Thanks to KC, I know the limits for contributing to a SIMPLE are $11,000 (or 14,000 if over 50). Anyone know if there is a percentage of wages limitation for the S corp shareholders? Thanks.

Julie R

[jasdlm]

Hi, Julie. I don't think I understand your question. Employees can defer 100% of salary up to the annual limit. Employer matches either the employee's salary reduction contributions or 3 percent of the employee's compensation for the calendar year, whichever is less. There are some cases where employers can match at less than 3%, but I don't think that is what you're asking. Since you posted this morning and have no responses, I'm wondering if I'm not the only one who isn't quite sure what you're asking.

[imjulier]

Let me clarify. With a SEP, you are limited to contributing 25% of your wages. So, if you pay the shareholder $40,000, they can only contribute $10,000. I was wondering if there is any similar limitation with a SIMPLE. I believe jasdlm answered my question by stating that up to 100% of salary can be deferred, up to the annual limit. Thanks jasdlm for your response.

Julie

[Randall]

Let me clarify. With a SEP, you are limited to contributing 25% of your wages. So, if you pay the shareholder $40,000, they can only contribute $10,000. I was wondering if there is any similar limitation with a SIMPLE. I believe jasdlm answered my question by stating that up to 100% of salary can be deferred, up to the annual limit. Thanks jasdlm for your response.

Julie

SEP limits are percentages. SIMPLE limits are dollar amounts. S Corp shareholder/employees W-2 compensation applies. So, yes, if the W-2 compensation is $10,000, they can contribute the $10,000 to a SIMPLE. Wages are still subject to FICA tax and local income tax (most localities). So (in this case), the shareholder/employee might have to put in money to cover the withholding taxes.