SEP Compensation

Hello-

Client owns a C Corp and has an employee. He is trying to make sure the right SEP contribution was made. The adoption agreement says it is based on a proportionate allocation of compensation.

Compensation is defined as: Compensation means wages, and other compensation from the Employer that are subject to federal income tax withholding under Code §3401(a), and all other payments of compensation to an Employee by the Employer (in the course of the Employer’s trade or business) for which the Employer is required to furnish the Employee a written statement under Code §§6041(d) and 6051(a)(3). Compensation must be determined without regard to any rules under Code §3401(a) that limits the remuneration included in wages based on the nature or location of the employment or the
services performed. Compensation also includes any elective deferrals described in Code §402(g)(3) or any amount that is contributed by the Employer at the election of the Employee and that is not includable in the gross income of the Employee under Code §§125,132(f)(4) or 457.

To determine compensation, is it as simple as looking at box 5 of the W2 – Medicare wages and tips? Neither the owner or employee would have hit the maximum allowable compensation limit.

Thank you!