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cak_ask
Lv 4
cak_ask asked in Business & FinanceTaxesUnited States · 8 years ago

401(k) contributions - both Employee AND Employer - withholding rules?

Hi I have a very small business and am just going to be starting a 401k for my first two w-2 employees. I think it will be a safe harbor 401k.

So I know that I am going to have to match 4%.

so can someone tell me which parts are subject to taxes (withholding). For example. . .

. Say the person makes $2,000 and has 10% going to their 401k, which is $200 -

I'll have to match 4% which is $80, correct? (meaning the employee get $280 total into the 401(k) acct, right?)

So my understanding is that there is NO FED withholding for the $200 or the $80.

FICA & Medicare is computed on the full $2,000, (but not on the $80 I put in, correct?

And then there is the state (in this case Ohio, and city) ..

how do I find out whether the full $2,000 gross or $1800 (net after employee contribution) is subject to state and city withholding? Or if someone knows, I'd appreciate the info)

And is the employer contribution subject to any tax (withholding)

Thanks

Update:

TO "A Hunch" - My company is an IT consulting company and I am a software developer. My initial payroll processing was based on documentation my tax preparer (an accountant who does other small businesses) gave me. I programmed a spreadsheet using his info and confirming with an online payroll calculator. (In fact my accountant liked what I did so much he asked me for a copy.) If I can program for my customers, I certainly should be able to do so for myself. :^)

BUT this is new (the 401k) and since it is about midnight and I am working on it now, I thought I would ask. (The online payroll calculate has check boxes that you check if the additional deductions are exempt.... and that was what I was looking to double check)

(Because my people work at several sites that have different time keeping and means of invoicing, I figured I'd be doing a lot of the same work in order to handle the invoicing, payroll and accounting, so I basically just have to plug in hou

3 Answers

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  • A Hunch
    Lv 7
    8 years ago
    Favorite Answer

    FICA taxes are subject to gross wages = the $2000.

    If an employee is contributing 10% that is $200

    = the employee pays city, state, and federal withholdings based on the $1800

    If you are contributing 100% of the first 4%, you are contributing $80

    - employer taxes don't change since they are on gross wages.

    I know that you think paying a company to do payroll processing is expensive. Doing in-house payroll is WAY more costly if you have an error. I STRONGLY recommend that small businesses outsource this. It could save you tons of headaches.

    Source(s): HR Technology consultant.
  • aamil
    Lv 4
    5 years ago

    i could say which you're seeing a pair of dozen purple flags right here. before everything, i don't think that that's criminal for a employer to apply worker contributions to a 401 alright to help pay thier employer expenditures. it fairly is criminal (i'm not particular of this) for them to apply the money that could want for use to verify your contributions (alot of employers will experience an worker 401k contribution to a undeniable cut back) for expenditures and experience what you place it at a later time. in the event that they're taking worker contributions, this probable is a sign of a lots larger subject, like a employer that won't be able to fulfill its financial commitments and/or one with questionable accounting practices. the two a sort of contain severe subject concerns. i could actually seem into this in greater ingredient till now certainly taking any action. Make a checklist of each little thing that occurs, ask numerous questions, and seek for criminal suggestion if this maintains to happen.

  • Bobbie
    Lv 7
    8 years ago

    You really should seek some good face to face professional assistance with matters such as this and NOT just try and guess when you are NOT sure about your situation and the deferred 401K compensation plans rules and about the contributions and the withholding for this purpose in order to prevent major problems at some time in your future for failing to do some of this correctly on your own when you really are NOT sure about it.

    Hope that you find the above enclosed information useful. 02/13/2013

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