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What should my minimum W2 compensation be in order to max out my i401K for 2020

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  • #31
    Originally posted by CordMcNally View Post
    The discrepancy (at least from the numbers on the documentation) that I'm getting is $1,248.44 which is the difference between your HSA and insurance so something funky appears to be going on there. Like they didn't add the full insurance but just the difference between the insurance and HSA to box 1.
    Wow, great catch!

    So, putting this all together:

    1) Their calculation of W-2 Box 1 was:
    $149,174.60 (salary) - $19,500 (pre-tax deferral) + $4,798.44 (insurance) - $3,550 (HSA) = $130,923.04

    It should have been:
    $149,174.60 (salary) - $19,500 (pre-tax deferral) + $4,798.44 (insurance) + $3,550 (HSA) = $138,023.04

    They subtracted the HSA rather than added it.

    2) They failed to included my 4th Quarter employer contribution of $9,375 in my 941.

    3) My salary could have been a little lower to get to the $150,000 compensation.

    4) HSA needs to be reported in Box 14 and NOT box 12.
    - I'm having a little trouble understanding this one since most of the things I google on the topic indicate HSA should be reported in box 12. However, I did find this explanation:
    Essentially, A) If the HSA contribution was excluded from the wages shown on the W-2, then they were considered pretax deductions under an employer's S125 plan and the amount should be included in Box 12W. B) If an employee contributes to their HSA using after tax money, then the amount they contributed should not show up in Box 12W.
    The way I interpret this: My HSA contribution should be included in the wages on W-2 making the contribution after tax. The amount contributed would then go in Box 14, not Box 12W.

    Apologies in advance if this question does not make sense due to my lack of comprehension:
    My question is if, by excluding my HSA from W-2 box 1 to get the $130,923.04 amount, it has the same effect with the inclusion of the HSA in Box 12W. Is it better to include my HSA in W-2 box 1 and put the HSA in box 14 for some reason (I'm guessing it is for some reason but not sure why)? For one thing the inclusion of the HSA in W-2 box 1 does get me closer to the $150,000 mark so my salary wouldn't have to be as large (is that a reason?).

    This group is so good it's unbelievable. I appreciate you guys so much! @ CordMcNally, spiritrider, jacoavlu
    Last edited by SteffanW; 02-02-2021, 02:24 PM.


    • #32
      read this. Come back with questions


      • #33
        I'm just adding this conversation from the facebook group for those who might like a simpler option, thought slightly less beneficial. Someone asked a similar question about the minimum W-2 compensation for an S Corp owner and the following was a response and follow up form Dave Anderson with regard to maxing out a 401(k):
        David Anderson:
        As little as can be considered reasonable compensation for your material participation. Beware that to max a 401(k) you'd need at least $154,000 in W-2 box 5.
        I’ll first acknowledge you’re very knowledgeable about taxes (more so than myself). However, I would like to take a closer look at the concept of the total compensation, which does have to be over 154K to max out a i401K, should be in box 5. Admittedly, I know little about this but I had an in depth conversation on the forum about this. What about the HSA, employee 401K, and >2% shareholder insurance contributions? Unless those factor into the box 5 tabulation I don’t think this is quite so simple as saying box 5 should be over 154K.
        To clarify, my understanding is that the $154K compensation (for 2021) includes: salary + pre-tax deferral ($19,500) + HSA ($3,600) + >2% shareholder insurance (if any). How does this fit into w-2 Box 5?

        David Anderson:
        Sure. There are myriad ways to express compensation for retirement plan purposes as per IRC §415(c)(3). They're explained in 26 CFR §1.415-2(c) and simplified in §1.415-2(d)(11).

        So if you want to go back and manually figure everything which could possibly be included as a taxable fringe benefit, go for it.
        But the simplest way to meet it is to use the safe-harbor way to satisfy §415(c)(3) which is essentially all wages subject to withholding such as in IRC §3401, because those are already considered "wages" and that's going to be the highest of the 3 W-2 boxes (1,3,5).
        So if you want to use W-2 box 1, with HSA and health insurance included (because they're deducted on your 1040) but with elective deferrals added back in, sure, go ahead. But that's more complicated and won't save you much more than just putting 4x the employer contribution in box 5.


        • #34
          I have no idea who this David Anderson is. Please don't tell me it is another lazy CPA. I have far more important things to do than waste my time on the Facebook group.

          But come on, how hard is it to calculate Box 1 + Box 12D instead of Box 5 in order to possibly make thousand$ more in employer contributions.


          • #35
            Originally posted by spiritrider View Post
            I have no idea who this David Anderson is. Please don't tell me it is another lazy CPA. I have far more important things to do than waste my time on the Facebook group.

            But come on, how hard is it to calculate Box 1 + Box 12D instead of Box 5 in order to possibly make thousand$ more in employer contributions.

            I almost don't want to respond because I'm grateful for all the help you've given me and wouldn't want to discourage that in the future. I know you were speaking rhetorically, but perhaps the answer to your questioned should be explored.

            David is one of the moderators on the, admittedly far less sophisticated, Facebook group. CPAs aren’t allowed in the group. I posted his take because I want to be able to refer to it in the future if this method doesn't work out the way I'm hoping and to give an alternative option for those who don't want to deal with the following:
            It is hard because, from the perspective of a lay person, it’s not nearly so simple as that.
            A) Per your direction:
            1. The S-Corp pays directly or reimburses the health insurance premium and/or makes directly or reimburses the HSA contributions.
            2. These after-tax payments are reported on the S-Corp's Form 1120s Line 7 Officer Compensation.
            3. They are also reported on the 2% shareholder-employee's W-2 Box 1 wages, but NOT Boxes 3 Social Security wages and 5 Medicare wages.
            4. The shareholder-employee then reports on their personal Form 1040 the Line 25 HSA deduction and the Line 29 Self-Employed health insurance deduction*.
            B) The payroll person (at Pachex for me) must be informed to make the adjustments correctly:
            1. the payroll person is likely to be unfamiliar with this method (and is in my case) so it has to be explained.
            2. My capacity to explain is limited due to a lack of comprehension regarding payroll and W-2s
            3. That payroll person may (and did for me) ask a supervisor about this who is also unfamiliar with this method.
            4. The payroll person will suggest collaboration with the CPA who also does not seem to regularly use the method.
            5. I have to google and research the method to assure I know enough about what I'm talking about to get by.
            C) The accountant must be informed
            1. The accountant will likely have questions about why I want to do it this way and, because I'm a lay person, I'll have trouble explaining.
            2. I'll have to tell the accountant to report the health insurance premium / HSA contrition after-tax payments (not even sure exactly what that it means exactly that they are after tax payments) on the S-Corp's Form 1120s Line 7 Officer Compensation
            3. I'll tell the accountant to report on the personal Form 1040 the Line 25 HSA deduction and the Line 29 Self-Employed health insurance deduction, without having a clue what I'm talking about if he has any questions.
            4. I'll then have to assure these things are done properly, which could be an issue.
            jfoxcpacfp once warned me against directing my CPA like this because I'm likely to end up with worse tax outcomes
            E) My CPA warns me I know just enough about taxes to get myself into trouble.

            Additionally, I wasn't aware the difference would be in the thousands. I was thinking hundreds.
            Last edited by SteffanW; 02-02-2021, 02:35 PM.


            • #36
              It appears that David Anderson (whoever he is, I don’t know, either) may be throwing a lot of words around rather than providing the simple explanation thatspiritrider provided in #26 above (along with helpful add-ons from jacoavlu andCordMcNally). I think what you may be getting hung up on is that Paychex made a mistake and your accountant d/n seem to have a good understanding of the rules. Unfortunately, this situation is far more common than working with a company or CPA firm that does have a good grasp of the rules. I would not go so far as to say you have a stupid accountant - he may be brilliant in, for example, cost accounting - but he may never have had reason to get into the weeds on this topic. Ok, so that leads me to believe he is somewhat lazy and stuck in “that’s how we’ve always done it” (i.e. ignorant of the rules and unwilling to learn) rather than stupid. I honestly don’t know and pass no judgment.

              I understand the reason CPAs, insurance providers, financial advisors, etc are not allowed to participate on the FB page (unless they are paid advertisers) but I think it makes for a much less informed group. Fortunately, the forum fills that gap. From what I read about it, I would recommend FB to vet advisors from actual client opinions and the forum for sound financial information.
              Last edited by jfoxcpacfp; 03-22-2021, 07:47 PM. Reason: Added closed paren’s
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


              • #37
                Just an update on this:
                I did end up getting Paychex to do Payroll properly, as the group suggested, and I'd like to thank you guys for your help.
                It did take me paying $75 for my CPA's bookkeeper to work out the math and showing paychex how to do this properly on the W-2. Paychex was very confused. This took many many e-mails and a fair bit of my time but they finally got it. I figured this was worth it because it's a one time fix and I'm set.
                Last edited by SteffanW; 03-22-2021, 01:12 PM.


                • #38
                  I just realized who David Anderson is - duh! Not going to out him here, but know he’s a doc who is (was?) studying for CFP (if he hasn’t already passed). Not a CPA but very knowledgeable and his responses here were usually spot on. I would compare his financial acumen/application to jacoavlu (jmpo). Glad he’s participating there.
                  Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087