Eligible Compensation for Defined Benefit Plans

Type of business entity determines what can be counted as compensation in calculating the contribution amounts for a defined benefit plan.

COMPENSATION QUICK REFERENCE CHART

    • Entity Type
    • Corporation
    • S-Corporation
    • Sole Proprietorship
    • Partnership
    • Source of Income
    • W-2 Income
    • W-2 + Schedule K-1
    • Net Profit
    • Net Profit
    • Compensation for plan
    • W-2 Income
    • W-2 Income Only
    • Earned Income (Calculate) * Schedule C, Line 31
    • Earned Income (Calculate) * Schedule K-1, Line 14a

Limited Liability Company (LLC) — compensation for plan depends on how LLC is taxed. See above for partnership or corporation rules.

Employees, other than owners, are paid W-2 income for all entity types.

Earned income = net profit (line 31 of the Schedule C as a Sole Proprietor or line 14a of the Schedule K-1 as a Partnership) minus½ self- employment tax minus plan contribution. Deductions for sole proprietors or partnerships are limited to net profit minus½ self-employment tax.

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