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employer 401k contribution

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  • employer 401k contribution

    Sorry in advance if this is a redundant topic.
    I made approx $120k of 1099 income as a physician in 2020 with business expenses of about 70k routing through my S-corp.
    With the 50k salary I will pay myself, how much am I allowed to place into a 401k (employer/employee contribution) and when would the deadline be if I file a tax extension for both the S-corp and my personal taxes?
    thank you in advance

  • #2
    • You would have needed to deduct 2020 employee deferrals from compensation not already received with a pay date on or before 12/31/20.
    • If you did that, you could have deferred up to the employee deferral limit (2020 = $19.5K) minus any employee deferrals made to other plans.
    • To make 2020 employer contributions you would have had to file an extension by the S-Corp's tax filing deadline 3/15/21.
    • If you did file an extension on time, the maximum employer contribution would be 25% of compensation.
    • The maximum 2020 (employee + employer contribution), is the lessor of 100% of compensation or the annual addition limit (2020 = $57K).
    • Bottom line: If you didn't receive any compensation in 2020, you can not make any employee deferrals or employer contributions. You can not pay yourself a 2020 salary now.
    Finally, it would be very uncommon for a physician's only compensation to be $50K. If you have other compensation and you have reached the Social Security maximum taxable earnings. It is almost certain that an S-Corp is counter-productive. You are most likely paying more in S-Corp 2% shareholder-employee FICA taxes than you would SE taxes as a sole proprietor.

    Not to mention, as a sole proprietor you could make larger employer contributions, take larger QBI deductions and not have the compensation restrictions of an S-Corp.
    Last edited by spiritrider; 05-03-2021, 05:30 AM. Reason: Added "SE taxes" clarification


    • #3
      So you’re spending $70k to make $120k as a physician? Something sounds wrong to me.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087