401k employer contributions/employer matching tax treatment

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winterescape
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401k employer contributions/employer matching tax treatment

Post by winterescape » Sat Mar 31, 2012 12:07 pm

In an effort to encourage my employer to start a 401k matching, or employer contribution to our 401k, I am trying to understand the tax implications to the employer of contributing or funding employee 401k’s.

How is the employer expense of contributing to a 401k treated under the tax code? This is a fairly small employer (200 employees) that provides contract employees.

All information I could find discusses the employee tax advantages and tax deferral advantage of the 401k but I could not locate anything about the treatment of the business expense to the employer.

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tfb
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Re: 401k employer contributions/employer matching tax treatm

Post by tfb » Sat Mar 31, 2012 1:22 pm

winterescape wrote:How is the employer expense of contributing to a 401k treated under the tax code?
Deductible up to 25% of payroll.
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livesoft
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Re: 401k employer contributions/employer matching tax treatm

Post by livesoft » Sat Mar 31, 2012 1:35 pm

In other words, it is a big expense to the employer. Their gain is mostly competing for employees against other employers with better 401(k) plans. In other words, it is not much of a benefit to the employer at all. It's an expense.
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winterescape
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Re: 401k employer contributions/employer matching tax treatm

Post by winterescape » Sat Mar 31, 2012 1:56 pm

Thanks TFB. Could you direct me to a document that details this? So the expense of a 1.0% 401k match is reduced by the % of the tax bracket of the employer, up to 25% of payroll?

Livesoft, I understand the comparison when employees are evaluating two potential jobs but if you already had a job without a match how might you persuade the employer to make 401k contributions or match a portion of the employee contribution?

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tfb
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Re: 401k employer contributions/employer matching tax treatm

Post by tfb » Sat Mar 31, 2012 3:50 pm

winterescape wrote:Thanks TFB. Could you direct me to a document that details this? So the expense of a 1.0% 401k match is reduced by the % of the tax bracket of the employer, up to 25% of payroll?
26 USC 404(a)(3)
(3) Stock bonus and profit-sharing trusts
(A) Limits on deductible contributions
(i) In general In the taxable year when paid, if the contributions are paid into a stock bonus or profit-sharing trust, and if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under section 501 (a), in an amount not in excess of the greater of—
(I) 25 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under the stock bonus or profit-sharing plan, or
(II) the amount such employer is required to contribute to such trust under section 401 (k)(11) for such year.
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winterescape
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Re: 401k employer contributions/employer matching tax treatm

Post by winterescape » Sat Mar 31, 2012 7:27 pm

tfb wrote:
winterescape wrote:Thanks TFB. Could you direct me to a document that details this? So the expense of a 1.0% 401k match is reduced by the % of the tax bracket of the employer, up to 25% of payroll?
26 USC 404(a)(3)
(3) Stock bonus and profit-sharing trusts
(A) Limits on deductible contributions
(i) In general In the taxable year when paid, if the contributions are paid into a stock bonus or profit-sharing trust, and if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under section 501 (a), in an amount not in excess of the greater of—
(I) 25 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under the stock bonus or profit-sharing plan, or
(II) the amount such employer is required to contribute to such trust under section 401 (k)(11) for such year.

Thanks!

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