SImple IRA for 2% shareholder

[sdtaxman]

Wheb calculating the 3% match for an S corporation employee that is also a greater than 2% shareholder that is provided health insurance that is also included in box 1 of the w-2 do you take 3% before the health insurance is added or after the health insurance is added?

Thank you,

[Traveling EA]

Simple matches

Wheb calculating the 3% match for an S corporation employee that is also a greater than 2% shareholder that is provided health insurance that is also included in box 1 of the w-2 do you take 3% before the health insurance is added or after the health insurance is added?

Thank you,

I am not familiar with the numbers to use for the match for a Simple Plan, but I do some work for an S corp that has a 401K plan. The 401K administrator uses the medicare wages, not the wages in box 1 of the W-2. It should be similar for a Simple plan, so the SE health insurance is not taken into consideration for the matches.

[MichaelG]

You will need to review the plan documents for the definition of compensation the plan uses to calculate contributions.

[New York Enrolled Agent]

You will need to review the plan documents for the definition of compensation the plan uses to calculate contributions.

The IRS has prescribed the definition of compensation for the purposes of the 3% match.

Notice 98-4 contains in part:
[35] Q. C-4: What definition of compensation applies for purposes of the SIMPLE IRA Plan rules in the case of an individual who is not a self-employed individual?

[36] A. C-4: For purposes of the SIMPLE IRA Plan rules, in the case of an individual who is not a self-employed individual, compensation means the amount described in section 6051(a)(3) (wages, tips, and other compensation from the employer subject to income tax withholding under section 3401(a)), and amounts described in section 6051(a)(8), including elective contributions made under a SIMPLE IRA Plan, and compensation deferred under a section 457 plan. ...

Since the amount in box 1 attributable to the HI is subject to withholding but not SS taxes, I would think in response to sdtaxman, the 3% match is made after inclusion of the HI. Thus I would add the amount in box 1 plus any deferral.

IRS announcement 92-16 contains in part:
... amounts paid by an S corporation for accident and health insurance covering a 2%-shareholder-employee are not wages for social security and Medicare tax purposes, even though the amounts must be included in wages for income tax withholding purposes on the 2%-shareholder-employee's Form W-2.