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fzapata

457(b) Deferrals

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We have a highly comp employee contributing to 457(b) plan, however instead of payroll dept. deducting from his payroll check, we just reduce his gross salary and the accounts payable department issues a check to the third party admin. By doing this, the deferred amounts are not reported on employees form W2. My question is are we processing this guys payroll appropriately?

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No. You are not processing the W-2 appropriately. The W-2 instructions states: "Amounts deferred (plus earnings) under a nonqualified or section 457(b) plan must be included in boxes 3 and/or 5 as social security and/or Medicare wages as of the later of when the services giving rise to the deferral are performed or when there is no substantial forfeiture risk of the rights to the deferred amount. Include elective and nonelective deferrals for purposes of section 457(b) plans." Also, the 457(b) deferral amount should be reported on box 12 with a code G.

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That means FICA taxes should have been paid as well, assuming your organization is not one of the few government entities out there that has some exemption from FICA overall.

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