Q on deferred salary to a Solo 401K

[Susan K.]

Hi Everyone,

We are business owners (construction co) classified as S corp, 2 members -  paid with W2 income from the business.

We deferred salary for 2024 to a Solo 401K.  Are we required to pay FICA tax on the deferred income?  We are getting conflicting answers on this.  

Please advise.  Thanks.

[Ashish Acharya]

@Susan K. Yes, as S-Corp owners deferring salary into a Solo 401(k), you must still pay FICA taxes (Social Security & Medicare) on the deferred income since FICA is based on W-2 wages, not taxable income. Employee salary deferrals (pre-tax or Roth) are subject to Social Security (6.2%) and Medicare (1.45%) and must be reported on W-2 Boxes 3 & 5, though Box 1 (taxable income) will be reduced for pre-tax deferrals. However, employer profit-sharing contributions (up to 25% of W-2 wages) are not subject to FICA taxes and do not appear on the W-2.

To stay IRS-compliant, ensure your Form W-2 and Form 941 properly reflect deferrals, and maintain a reasonable salary to avoid red flags. To reduce FICA liability, consider maximizing profit-sharing contributions instead of excessive salary deferrals. Balancing salary, distributions, and employer contributions can optimize tax efficiency while keeping you compliant.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.