SEP calculation for W-2 with health ins. premiums included in Box 1

[Connecto1]

Imagine a situation where Taxpayer is sole owner of an S-Corp with an $80,000 salary and $10,000 in owner health insurance premiums paid by the S-Corp.  Per the IRS rules Box 1 of Taxpayer's W-2 will show $90,000 and boxes 3 and 5 will show $80,000.  But in determining the max SEP contribution of 25% of wages, do we base it on $90k or $80k?  Thanks in advance for any replies!

[dkh]

Look at IRS Pub560 page 4, column 2  heading Other Options  2nd bullet point      I'd say yes

[Connecto1]

Thanks DKH.  My interpretation of this is that we base the max SEP on Box 1--$90k in my example.

[dkh]

I'm glad you asked the question.  I've just been using wages.  Learned something new today.  Thanks

[PATAX]

Sep contribution is reported by SEP administrator based on the year in which  it is made, Not the year that it applies to... Therefore in the past the IRS had problems correctly matching the sep contribution to the return... A few years ago I had a client where they screwed it up and tried to bill them a large amount for a so-called disallowed SEP contribution over the maximum... I had to send a letter with all of the documentation from the client and the SEP administrator and then they corrected their letter... so make sure you save all the documentation, like the cancelled check(s) and so forth .... for what it is worth...just my opinion...