TN 10 (09-90)
RS 01402.125 Profit-Sharing Or Stock Bonus Plan
Under a profit-sharing or stock bonus plan the employee can elect to have the employer make payments (i.e. contributions):
2. Salary Reduction Agreement
Beginning January 1, 1980, employees may contribute to a plan by salary reduction (RS 01402.010). If the plan meets the requirements of sec. 401(k)(2) of the IRC, the amount of the salary reduction is deemed to be the employer's funds, and therefore, excluded from wages under sec. 209(a)(4) of the act.
3. Employee Has Option to Receive Cash
a. When Contributions Are Wages
Beginning January 1, 1984, employee contributions made under a qualified cash or deferred arrangement, under sec. 401(k)(2) of the IRC, are wages for Social Security purposes if the employee could have elected to receive cash in lieu of the contributions and the amounts were not included in the gross income by reason of sec. 402(a)(8) of the IRC. The contributions are counted as wages at the time the distributions are paid to the trust.
b. When Contributions Are Not Wages
Beginning January 1, 1984, contributions can be excluded from wages if:
Paid pursuant to certain elective deferrals made before January 1, 1984, and
Under the terms of an arrangement in effect on March 24, 1983.
The employer must identify the contributions which meet the above requirements for a wage exclusion.
If development is necessary, apply the guidelines in RS 01402.140, tax-exempt trusts.