Limit on Elective Deferrals for 401(k) Plans

There is a limit on the amount an employee can contribute out of his pay to a qualified plan each year. In addition, the employee cannot defer more than the limit that applies to a particular year.

Contribution limits:

For tax year 2017, 2016, and 2015 the basic limit on elective deferrals for 401(k), 403(b), and most 457 (b) plans remains unchanged at $18,000.

If in conjunction with other plans the deferral limit is exceeded, the difference is included in the employee's gross income.

Catch-Up Contributions:

For those age 50 or over at the end of the calendar year, in addition to the elective deferral, a catch-up contribution. The catch-up contribution deferrals for 2017, 2016, and 2015 remains at $6,000. The limit is subject to cost-of-living increases.

Employee Compensation Limit

For tax year 2017, no more than $270,000 ($265,000 for 2016) of the employee's compensation can be taken into account when figuring contributions.

Form W-2 Reporting for Elective Deferrals

Employee's elective deferrals are excluded from federal income taxes. Do not include them in box 1 of Form W-2.

However, elective deferrals are subject to social security and Medicare taxes, so you must include them in boxes 3 and 5, and complete box 12 of Form W-2.

Automatic Enrollment in a 401(k) Plan

Your 401(k) plan can have an automatic enrollment feature. This feature allows you to automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. These contributions qualify as elective deferrals.

File your personal and small business taxes (Schedule C)