I have a Client who is an S-Corp who takes a relatively small W2 and has a SEP IRA with me that he contributes to. His 2013 W2 reads as follows: Box 1 (Wages, Tips and other Compensation)is: $28,154 and Box 3 & 5 (Wages Subject to Social & Medicare) is $15,000. He had to claim $13,154 box 12a as DD (employer cost of health insurance).

Is he allowed to contribute 25% of the amount in Box 1 or just 25% of the amount in boxes 3 & 5. I believe it’s just 25% of the amount subject to Social Security and medicare taxes boxes 3 & 5.

Your thoughts?