If you offer an employer match or non-elective contributions (including safe harbor), they will be processed with each payroll as an expense separate from wages. Generally, both employer contributions and employee deferrals are pulled at the same time directly from your company’s bank account on file. The exception is profit sharing contributions, which are done on an annual basis and are typically pulled from your account in a separate transaction.

Employer contributions are generally 100% tax deductible for employers, up to the annual corporate tax deduction limit on all employer contributions (25% of covered payroll). Even though they are deductible by the company, employer contributions are not included in the employee’s gross income until distributed,* and they are exempt from both the employer and employee portions of Federal Insurance Contributions Act (FICA) Medicare and Social Security, Federal Unemployment Tax Act (FUTA), and other payroll taxes. All contributions have the added upside of being able to grow tax-deferred, and possibly tax-free for qualified Roth distributions, over time.

Non-elective contributions are required to be calculated from total annual compensation for each employee. Guideline processes non-elective contributions on a per-pay-period basis. However, if any non-elective contributions were not made on compensation during the year (e.g., for bonuses) or the non-elective contribution was added mid-year, you will need to make true-up contributions to employees who had not received their full employer contribution amounts.

Similar to profit sharing contributions, true up amounts may be deductible in the previous year, even though they are made after year-end. While Guideline allows for true ups due to plan changes or for correction purposes, across the board true-ups of matching contributions are not supported.

Profit sharing contributions made after year’s end but before your organization’s tax return due date (plus any requested extension) are deductible on your prior year’s tax return. While the IRS allows you to make profit sharing contributions after your tax return due date but before the end of the following year and deduct it on the next year’s taxes, the plan document that is used by plans at Guideline requires that profit sharing contributions be made by the tax return due date. How you deduct your profit sharing expense will depend on your company’s accounting practices. It is important to consult a qualified tax advisor on how to properly deduct your profit sharing expense.

* While Roth employer contributions are permitted, Guideline does not support these types of contributions at this time.

The information provided herein is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein.