What is the difference between an employer contribution and a salary deferral contribution?
If your business is incorporated, the employer contribution is based on your W-2 income and is contributed by the business. The maximum employer contribution is 25% of pay. It is not subject to federal income tax or Social Security (FICA) taxes. The salary deferral contributions are withheld from your pay and are excluded from federal income tax but are subject to FICA. The maximum salary deferral amount for 2010 is 100% of pay up to $16,500 or $22,000 if you are age 50 or older. If your business is unincorporated, the employer and salary deferral contributions are based on your net earned income. For help in determining your maximum contribution amount, refer to the Self-Employed Contribution Guide in the Uni-K Set-Up Kit. Contributions are not subject to federal income tax but are subject to self-employment taxes (SECA). You receive a tax deduction for both salary deferral and employer contributions on your Form 1040.
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