Advanced Underwriting Consultants

Ask the Experts – May 27

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: Are 403(b) contributions subject to employment taxes?

Answer: The simple answer is yes—although employee deferrals are not treated as current income for federal income tax purposes, they are included as “wages” and subject to social security, Medicare, and federal unemployment taxes (FUTA).

However, employer contributions are not subject to such employment taxes as long as the contributions:

    • Are mandatory for all employees covered by the retirement system.
    • Are a salary “supplement” and not a salary reduction—i.e. the employer must not reduce employee salary to offset the amount designated as employee contributions.

Therefore, contributions to employer-sponsored plans could be labeled as “employer contributions,” but still be considered employee contributions for social security, Medicare, and FUTA purposes.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.