401(k) Match Calculation Inaccurate

@efernandez  Have you checked the setup of the 401(k)?

Within the edit window, on the 4th window, Taxes, you'll see a list of payroll items to have the 401(k) apply to.

More likely than not, there will be your problem.

I can see the importance of having your 401(k) calculations handled accurately in QuickBooks Desktop (QBDT), @efernandez. Let me help you ensure everything is set up correctly to avoid any issues with your contributions.

As noted by @FishingForAnswers, it’s essential to verify that your 401(k) setup in QuickBooks is configured correctly, as this could be the reason why your S-Corp Medical contributions are not included in the calculations.

Proper configuration is essential to ensure that both employee contributions and employer matches are processed accurately. To review your setup, please follow these steps:

1. Navigate to the Employees menu, then Payroll Center.
2. Click on the Payroll Items button
3. Choose the ITEM NAME you want to review
4. Proceed to check your 401(k) setup.

Moreover, you can generate payroll reports in QBDT to get a closer look at your business finances. QuickBooks allows you to customize these reports to match your specific needs.

I'm available to assist with any further questions you have about payroll contributions in QBDT. Feel free to ask if you need any help. Take care.

@Jelayca V  There is no need to post after @FishingForAnswers excellent answer with another that adds no value. It's rude.

I have checked the set-up and there is not a way to make sure that S-corp Medical is included in the matching calculation.  I have contacted tech support and they were not any help or could not assist me with an answer.  

@efernandez  Hmm... Unless the S-Corp Medical is somehow set up a bit off, I'm not sure what would cause that. That listing should include basically any given relevant payroll item.

Not too surprising about the tech support, though; Intuit isn't really in the business of hiring accountants for its support staff anymore.

Luckily for you, @BigRedConsulting  is already in this thread. They've resolved a lot of questions here.

How do I get your assistance on this as I have already performed the tasks you had mentioned with no success.  

Thank you.  I hope Big Red can assist.  

There is not an option to see or change what items QuickBooks is including as income for the Matching calculation.

I appreciate your resonse.

RE: I hope Big Red can assist. 

I can try. I'm not sure that I fully understand the issue, though.

In a test file, I set up the S-Corp Medical Insurance company contribution item and the 401k Plan, with both deduction and a company contribution items.

Then I set up an employee to use all of these items, with the 401k items both at 10% for easy math.

Then I paid the employee $2000 and both 401k items calculated correctly at $200.

The S-Corp Medical Insurance is a company contribution and is not earned wages. All it appears to do is increase the basis and so the resulting tax for Federal Withholding and some or all State Withholding taxes.

As such, it isn't added to gross pay and so doesn't impact the calculation of percentage deductions for either of the 401k items (or any other additions or deductions). This seems correct to me.

Can you explain in more detail what you're seeing and what problem it causes?

Thank you for your response.  So a safe-harbor matching contribution includes all compensation.  S-Corporation Medical is added compensation to the shareholders.  As such, the matching calculation should include the S-corporation medical. 

I will add additional information to your example.  If the S-Corporation medical is $1,000, then the 401K matching calculation should be $300, not $200.  I hope that helps.  

By it not including the calculation, the employer is having to make "Catch-up" contributions at year end.  This harms the employee as they are missing out on dollar cost averaging.  

Per the IRS, 

Treating medical insurance premiums as wages

Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee's Form W-2, subject to income tax withholding. (A 2-percent shareholder is someone who owns more than 2 percent of the outstanding stock of the corporation or stock possessing more than 2 percent of the total combined voting power of all stock of the corporation.)

1. A safe harbor 401(k) plan defines compensation as Form W-2 wages (that is, the amount shown in an employee’s W-2, Box 1, Wages, tips, other compensation), less reimbursements, fringe benefits, moving expenses, and welfare benefits. This definition satisfies IRC Section 414(s) because it complies with Reg. Section 1.414(s)-1(c)(3).  Compensation Definition in Safe Harbor 401(k) Plans | Internal Revenue Service (irs.gov)

As as result I am not seeing a way to have QuickBoooks calculate the match based on what income is included in box 1 of form W-2.

I hope QuickBooks can provide a solution for this and am surprised that no one else is having this issue.  

Thank you,

Thank you for your response.  So a safe-harbor matching contribution includes all compensation.  S-Corporation Medical is added compensation to the shareholders.  As such, the matching calculation should include the S-corporation medical. 

I will add additional information to your example.  If the S-Corporation medical is $1,000, then the 401K matching calculation should be $300, not $200.  I hope that helps.  

By it not including the calculation, the employer is having to make "Catch-up" contributions at year end.  This harms the employee as they are missing out on dollar cost averaging.  

Per the IRS, 

Treating medical insurance premiums as wages

Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee's Form W-2, subject to income tax withholding. (A 2-percent shareholder is someone who owns more than 2 percent of the outstanding stock of the corporation or stock possessing more than 2 percent of the total combined voting power of all stock of the corporation.)

1. A safe harbor 401(k) plan defines compensation as Form W-2 wages (that is, the amount shown in an employee’s W-2, Box 1, Wages, tips, other compensation), less reimbursements, fringe benefits, moving expenses, and welfare benefits. This definition satisfies IRC Section 414(s) because it complies with Reg. Section 1.414(s)-1(c)(3).  Compensation Definition in Safe Harbor 401(k) Plans | Internal Revenue Service (irs.gov)

As as result I am not seeing a way to have QuickBoooks calculate the match based on what income is included in box 1 of form W-2.

I hope QuickBooks can provide a solution for this and am surprised that no one else is having this issue.  

Thank you,

I apologize if this posted multiple times.  It was not showing up after I posted it.

You make some good points, but I think you're assumptions then on how QuickBooks Payroll must work aren't quite right. A payroll system doesn't have to help you with things like this, though it can.

RE: Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee's Form W-2, subject to income tax withholding.

Yes, that is correct and QuickBooks does that.

RE: A safe harbor 401(k) plan defines compensation as Form W-2 wages (that is, the amount shown in an employee’s W-2, Box 1, Wages, tips, other compensation), less reimbursements, fringe benefits, moving expenses, and welfare benefits. 

How a safe harbor plan defines compensation does not, I think, determine how the (generic) 401-k items have to calculate on a percentage basis.

RE: As as result I am not seeing a way to have QuickBoooks calculate the match based on what income is included in box 1 of form W-2.

There isn't one. As it turns out, nothing in payroll does that. Not even the calculation for Federal Withholding does that, because at least one defined tax tracking item that is included in Box 1 is actually not subject to Federal Withholding tax calculation. I know that's completely unintuitive, but you know... government logic.

As is happens, the only feature in QuickBooks payroll that actually knows what Box 1 will be is the W-2 forms code that calculates Box 1.

RE: I will add additional information to your example. If the S-Corporation medical is $1,000, then the 401K matching calculation should be $300, not $200. I hope that helps. By it not including the calculation, the employer is having to make "Catch-up" contributions at year end. This harms the employee as they are missing out on dollar cost averaging.

There is a way to set this up so it'll work like you want:

This will work well assuming the employee's salary and S-Corporation Medical company contribution benefits are rather constant...

Using the same numbers I started with and you added to:

Salary Compensation: $2000

S-Corporation Medical: $1000

And in order to get the resulting 401k numbers to be:

401-k Employee: $200

401-k Employer Match: $300

Instead of setting up the match at 10%, calculate an extra percentage based on the portion of the compensation that is S-Corporation Medical.

So, in this case the factor to use is 1.5:  (1000+2000) / 2000 = 1.5.  

And then increase the percentage of the match by that factor: 10% * 1.5 = 15%

Then enter 15% for the the match item on the employee and then you'll get $300 for the match, appropriate increased by the S-Corporation Medical.

Thank you for your response.  I will run the math and make it happen.  I just wish there was a way for QuickBooks to include the total compensation for the 401K match.