Does Form 941 Really Include 401(k) Contributions? – Avoid This Mistake + FAQs

As a business owner or payroll manager, you might be scratching your head over how to handle 401(k) contributions on your quarterly tax filings.

Yes and no. Form 941 does not have a separate line asking for 401(k) contributions, but those contributions are indirectly reflected in the wage figures you report.

You don’t explicitly list “401(k) contributions” anywhere on Form 941, but they affect the numbers that you do report for wages and taxes:

• Employee 401(k) deferrals reduce the wages subject to federal income tax. On Form 941, Line 2 (“wages, tips, and other compensation”) represents the total taxable wages for federal income tax withholding. Pre-tax 401(k) contributions are excluded from this amount.

• In other words, an employee’s 401(k) deduction comes out of their pay before calculating federal income tax, so it lowers the wage figure on Line 2. For example, if an employee earned $5,000 and put $500 into a traditional 401(k), you would only include $4,500 on Line 2 as taxable wages for that quarter.

• Those same 401(k) deferrals are still included in wages for Social Security and Medicare taxes. Form 941 has separate lines for wages subject to Social Security tax (Line 5a) and Medicare tax (Line 5c).

• 401(k) contributions do count in these wages because 401(k) deferrals are not exempt from FICA taxes. In the example above, the full $5,000 would count as Social Security and Medicare wages on Lines 5a and 5c, even though only $4,500 was subject to income tax. This means both the employee and employer still pay Social Security/Medicare tax on the 401(k) contribution amount.

Form 941 “includes” 401(k) contributions indirectly: they reduce the taxable income wages on the form, but they remain included in the FICA wage totals.

There is no explicit box to list 401(k) dollars, but the impact is woven into the wage and tax calculations.

This design is intentional and rooted in how federal tax law treats 401(k) deferrals (more on that soon).

For employer contributions (like a company match or profit-sharing into the 401(k)), the story is simpler: those amounts are not reported on Form 941 at all.

Employer 401(k) contributions are not part of employee wages or payroll taxes – they’re a business expense, reported on your business’s tax return (and on the employee’s retirement plan statement), but they never show up on the 941 because they aren’t withheld from the employee’s paycheck.

Form 941 Basics and Why 401(k) Reporting Matters

To put everything in context, let’s briefly review what Form 941 is and why getting the numbers right (including any 401(k)-related adjustments) is so important:

Form 941 is the IRS Employer’s Quarterly Federal Tax Return. It’s how you report the wages you’ve paid and the taxes you’ve withheld from employees’ paychecks every quarter. This form includes:

• Total wages paid to your employees (that’s Line 2, covering wages subject to federal income tax withholding).
• Federal income tax withheld from those wages (Line 3).
• Wages subject to Social Security tax (Line 5a) and the amount of Social Security tax due.
• Wages subject to Medicare tax (Line 5c) and the Medicare tax due (plus any additional Medicare for high earners on Line 5d).
• Any adjustments, credits, etc., and the total tax liability for the quarter.

Because Form 941 summarizes your payroll activity, it must align with what employees see on their W-2 forms at year-end.

A classic IRS audit technique is to reconcile your four quarterly 941 forms with the totals on all your employees’ W-2s. 401(k) contributions affect W-2s and 941s in tandem, so consistency is key:

• On an employee’s W-2, Box 1 (federal wages) is reduced by pre-tax 401(k) contributions (just like Form 941 Line 2). Meanwhile, Box 3 and Box 5 (Social Security and Medicare wages) include those contributions. This exactly mirrors what you report on the 941 each quarter (Line 2 vs. Lines 5a/5c).

• If you report wages incorrectly on Form 941 – for example, not subtracting 401(k) deferrals from Line 2 – the total wages on your 941s won’t match the W-2 Box 1 totals. This kind of discrepancy can raise a red flag with the IRS. Similarly, if you mistakenly exclude 401(k) amounts from Social Security wages on the 941, your W-2 Box 3 totals would be higher than your 941 Line 5a totals, which is another red flag (and it means you underpaid Social Security tax).

Handling 401(k) contributions correctly on this form ensures that your quarterly tax filings line up with your payroll records and W-2s.

It also ensures you’re withholding and paying the right amount of tax. Mistakes can lead to tax underpayments (if you under-report wages for Social Security/Medicare) or overpayments (if you over-report taxable wages for income tax), and fixing those later (through amended returns like Form 941-X) can be a headache.

How 401(k) Contributions Affect Taxable Wages (Federal Rules)

Understanding how 401(k) contributions are treated under federal tax law will make it clear why Form 941 is filled out the way it is.

The IRS distinguishes between two types of taxes on wages: income tax withholding and payroll taxes (Social Security and Medicare, a.k.a. FICA taxes). 401(k) contributions are handled differently for each:

• Federal Income Tax: Traditional 401(k) contributions are pre-tax for income tax. This means the amount an employee defers into a traditional 401(k) is NOT counted as part of their taxable income for federal income tax purposes. The IRS basically pretends that portion of salary wasn’t paid to the employee at that time (it’s deferred to the 401(k) plan).

• Result on Form 941: Those contributions are excluded from the wage total on Line 2. In IRS lingo, 401(k) deferrals are often called “elective deferrals” and are one of the items excluded from the definition of “wages” for income tax withholding (per Internal Revenue Code Section 3401). So you only report wages after subtracting any traditional 401(k) (and similar pre-tax benefits like Section 125 cafeteria plan deductions for health insurance, FSAs, etc.).

• Social Security and Medicare (FICA): For these payroll taxes, 401(k) contributions do not get special tax-free treatment. The law (IRC Sections 3121 and 3101) includes elective deferrals in the definition of “wages” for FICA. In plainer terms, even though an employee puts that money into a retirement plan, it’s still considered part of their earnings for the purpose of Social Security and Medicare taxes.

• Result on Form 941: You include gross wages before the 401(k) deduction when reporting Social Security and Medicare wages on Lines 5a and 5c. The employee’s 401(k) contribution is still hit with FICA taxes, and you, as the employer, also pay your matching FICA share on that amount.

Why this split treatment?

It’s by design: The government wants to encourage retirement saving by giving an income tax break up front, but it still needs to fund Social Security and Medicare, so it doesn’t allow avoiding FICA on those deferred wages.

The IRS formally clarified this in the tax code – ensuring that all elective salary deferrals (401(k), 403(b), 457(b) plans, etc.) remain subject to payroll taxes even though they’re not counted for income tax.

This keeps the Social Security system funded and also has a side benefit: your 401(k) contributions still count toward your Social Security earnings record.

(If 401(k) deferrals were exempt from FICA, your reported earnings for Social Security would be lower, potentially reducing future benefits. But since they’re included, you’re not shortchanging your Social Security by saving for retirement.💡)

What about other types of 401(k) contributions? There are actually a few scenarios, and each has its own tax treatment:

Pre-Tax vs. Roth 401(k) Contributions 🧐

If your plan offers a Roth 401(k) option, the contributions an employee makes to the Roth 401(k) are after-tax. This is essentially the opposite of a traditional 401(k) for income tax:

• Roth 401(k) contributions do not reduce taxable wages for income tax. They are taken out of the paycheck after income tax is calculated. So an employee who puts $500 into a Roth 401(k) still has that $500 included in Box 1 of the W-2 and on Line 2 of Form 941. In other words, Roth contributions behave like any taxable wages in the short term. (The benefit comes later – withdrawals in retirement will be tax-free.)

• For FICA taxes, Roth 401(k) contributions are treated the same as traditional 401(k) contributions. They are part of wages for Social Security/Medicare. This isn’t really a change, because Roth contributions didn’t reduce the wage in the first place – either way, the full amount is in wages and taxed for FICA.

So, from a Form 941 perspective: Roth 401(k) contributions don’t change any line on the form at all.

They don’t lower Line 2 (since they’re taxable), and of course they’re included in Lines 5a/5c just like the rest of the wages. You simply withhold income tax on those amounts as you would on normal pay.

The only place Roth vs. traditional shows up is on the W-2 (traditional 401(k) deferrals are noted with code D in Box 12, whereas Roth 401(k) deferrals use code AA in Box 12). But on the 941, there’s no code or separate reporting for Roth – it’s all just part of the wage totals.

Quick recap: For an employee with traditional 401(k) contributions, Form 941 will show lower federal taxable wages than their gross pay, but the Social Security/Medicare wages will still reflect the full gross pay.

For an employee with Roth 401(k) contributions, Form 941 wages are essentially the same as if they hadn’t contributed (because the deduction doesn’t reduce taxable wages).

Employer Matching Contributions (and Other Employer 401(k) Contributions)

Many employers match a portion of employee 401(k) contributions or contribute a fixed amount each year. It’s important to note that employer contributions are entirely separate in terms of taxes and reporting:

• Employer contributions (whether matching, non-elective, profit-sharing, etc.) are not part of the employee’s wages. The employee isn’t paying tax on that money when it goes into the plan, and it doesn’t show up on their paycheck stub as income.

• Since it’s not wages, you do not include employer contributions on Form 941 at all. Form 941 is only concerned with amounts that went through payroll as employee compensation. An employer match, for instance, goes directly from your business to the retirement plan – it never passes through the employee’s paycheck or W-2. Therefore, it’s invisible on Form 941.

• You will typically deduct employer contributions as a business expense on your corporate tax return (Form 1120, 1120S, or on Schedule C for sole proprietors), and they might be reported on the annual plan return (Form 5500, if you file one for the 401(k) plan). But for the purposes of payroll tax filings like the 941 or W-2, employer contributions don’t appear.

Important: Sometimes small business owners get confused and wonder if an employer contribution should be added to an employee’s W-2 or 941. It should not.

For example, if you give a 3% safe harbor contribution or a profit-sharing deposit to everyone’s 401(k), that 3% is not wages and not taxed as such.

The only time it would ever be on a W-2 is in a very specific scenario (certain profit-sharing amounts in a few government plans, or if something was recharacterized as wages by the IRS due to plan failure – very rare).

In a normal operating 401(k) plan, don’t mix employer contributions into your payroll wage reporting.

Other Related Pre-Tax Deductions (Comparison)

To further clarify, let’s compare 401(k) deferrals to other common pre-tax benefits, because not all pre-tax deductions are treated the same way:

• 401(k) or 403(b) retirement contributions: Pre-tax for income tax; not pre-tax for Social Security/Medicare. (We’ve covered this: they lower Line 2, but not Lines 5a/5c on Form 941.)

• Section 125 Cafeteria Plan deductions (e.g., health insurance premiums, Flexible Spending Accounts, certain pretax commuter benefits): These are pre-tax for both income tax and FICA in most cases. For instance, an employee’s health insurance premium deducted under a cafeteria plan reduces all taxable wages – federal, state, Social Security, Medicare, etc. If an employee has $200/mo pre-tax health premium, that $200 is excluded from Line 2 and from Lines 5a/5c on Form 941. This is a key difference: a 401(k) deduction would not be excluded from 5a/5c.

• Tip: This means an employee’s Social Security wages might actually be higher than their federal wages if they have large health deductions but also a 401(k). It’s normal – Box 1 of W-2 could be lower than Box 3 if, say, health insurance and 401(k) both occur. Payroll systems handle these nuances, but it’s good to know.

• Health Savings Account (HSA) contributions (via payroll deductions): If done under a Section 125 plan, employee HSA contributions are pre-tax for income, Social Security, and Medicare – just like health premiums. (If not through a cafeteria plan, they would still be above-the-line deductible to the employee, but most employers run them pre-tax.) Again, different from 401(k).

• Dependent Care FSA contributions: Also typically pre-tax for all of the above (up to the annual limits).

• Other retirement contributions: If you have a SIMPLE IRA plan instead of a 401(k), employee salary deferrals to SIMPLE IRAs follow the same tax treatment: exempt from income tax, but not from FICA. So Form 941 treatment for a SIMPLE IRA deduction is analogous to a 401(k) deduction. The same goes for SEP-IRAs (though those are employer contributions only) or 457(b) governmental plans (pre-tax, but subject to FICA, generally).

Knowing these distinctions helps you avoid confusion. One common mistake is assuming all “pre-tax” deductions are the same. They’re not – 401(k)s have that quirk of still being FICA-taxable. So when reviewing your quarterly 941, it’s normal to see differences between the wage amounts for income tax vs. Social Security tax.

State Tax Nuances: How States Treat 401(k) Contributions

We’ve covered the federal side (which applies to everyone filing Form 941). Now let’s talk about state income taxes. Many employers also have to withhold state income tax, and states have their own definitions of taxable wages.

The good news is that most states follow the federal lead on 401(k) contributions, but not all states do.

• Most states: In the majority of U.S. states, traditional 401(k) contributions are also treated as pre-tax for state income tax. This means the amount an employee defers to their 401(k) is not included in their state taxable wages, just like it’s not in their federal taxable wages. On the state wage reports or state W-2 boxes, the state wage will typically equal the federal wage (Box 1) for an employee who only has a 401(k) deduction. So, if an employee’s federal W-2 Box 1 is $45,000 because they put $5,000 into a 401(k) out of a $50,000 salary, their state wages are often $45,000 as well (assuming the state follows the federal exclusion).

• A few states: Some states do not fully exclude 401(k) contributions from taxable income. One notable example is Pennsylvania. Pennsylvania has its own definition of taxable compensation and does not recognize 401(k) deferrals as a pretax deduction. So in PA, that same employee would have $50,000 of taxable income for state purposes, even though for federal it’s $45,000. The contributions are taxed when earned, but (importantly) Pennsylvania then does not tax the 401(k) distributions in retirement since the contributions were already taxed.

• Another state with a nuance is New Jersey – historically, NJ did not allow certain retirement deferrals to reduce state income, though it currently allows 401(k) deferrals to be pre-tax (NJ treats 401(k) like federal, but does not exclude some other types of cafeteria plan deductions).

• Massachusetts also does not exclude 401(k) contributions from state income – you pay MA income tax on your contributions now, but qualified withdrawals later are partly tax-free in MA. Always check your specific state’s rules or consult a state tax guide: the vast majority mirror federal, but if you’re in a state with differences (often in states with flat income taxes or unique tax codes), you’ll want to handle your state withholding correctly.

• Local taxes: In some areas, there are local income taxes (e.g., many cities in Ohio, Pennsylvania local municipalities, New York City, etc.). Local taxes often use the state’s definition of wages or the federal definition. For instance, most local taxes in PA start with PA state income (which already includes 401(k) contributions as taxable), so effectively you’re taxing the 401(k) deferrals locally as well. On the other hand, a city that uses federal AGI as a starting point would exclude 401(k) contributions. It can vary, but typically, if your state treats it one way, the local follows suit.

These state nuances do not affect Form 941 (which is federal-only), but they do affect your overall payroll process.

You might find that an employee has different taxable wage totals for federal vs. state on their pay stub. That’s normal in places like Pennsylvania.

Just be mindful: a 401(k) contribution could be reducing one kind of tax but not another. Make sure your payroll system is set up correctly for your state so that you’re withholding the right state tax. And if you operate in multiple states, this is an area to double-check for each state’s rules.

Key takeaway: Federally, 401(k) deferrals always lower income tax wages and never lower FICA wages. At the state level, know your state’s rule – in most cases it’s the same as federal (no state tax on contributions now), but a handful of states tax the contributions upfront.

Avoiding Common 401(k) Reporting Mistakes on Payroll Forms ⚠️

Handling 401(k) contributions in payroll can be tricky, and both new and experienced employers sometimes slip up. Here are some common mistakes to avoid so you can stay compliant and keep your books in order:

1. Including 401(k) contributions in Line 2 wages by mistake. This error means you reported too high of a wage for income tax purposes on Form 941. For example, you might have taken an employee’s gross pay and reported it all on Line 2, forgetting to subtract their 401(k) deferral.

This will make it look like you should have withheld more income tax than you actually did. It also will overshoot what that employee’s W-2 Box 1 should be.

Avoid it: Double-check that your Line 2 matches your employees’ taxable wages for federal income tax. If your payroll software is set up right, it will do this automatically.

But if you’re doing manual calculations, remember to deduct any traditional 401(k) (and other pre-tax benefits that are income-tax-free) from the wage total before entering it on Line 2.

2. Excluding 401(k) contributions from Social Security and Medicare wages. This is the flip side error: thinking those deferrals shouldn’t be taxed for FICA and leaving them out of Lines 5a and 5c.

If you do this, you’re under-reporting wages to the IRS for FICA, which means you’re also underpaying Social Security/Medicare taxes. That can lead to IRS notices, penalties, and the need to file corrected forms (941-X) later.

Avoid it: Remember that 401(k) deductions must be included in the 5a/5c wage calculations. An easy check is to make sure Social Security wage (Line 5a) for each employee doesn’t drop just because they have a 401(k).

Typically, Social Security wages should equal gross wages (up to the annual Social Security wage base limit, $160,200 for 2023 for example) minus any FICA-exempt deductions (which 401(k) is not).

FICA-exempt deductions are things like certain cafeteria plan items. So if you see Social Security wages lower than gross and the only deduction was a 401(k), that’s a red flag you did something wrong. (The exception is if the person hit the Social Security cap mid-year, then it might not equal gross for that reason.)

3. Misclassifying Roth vs. Traditional contributions. If an employee is contributing to a Roth 401(k), and you accidentally treat it like a pre-tax deferral in your payroll system, you could under-withhold their income tax.

Their full wages should be taxed, but if you thought it was pre-tax, you might have given them a tax break they shouldn’t get. Conversely, if you mistakenly treat a traditional 401(k) as taxable, you’ll withhold too much tax and report wages too high.

Avoid it: Maintain clear records of which contributions are Roth vs. pre-tax. Most systems use separate deduction codes for “401k pre-tax” and “401k Roth.”

If you’re doing things manually, note it on your payroll spreadsheet. Come W-2 time, verify that those with Roth 401(k) have no reduction in Box 1 and have the appropriate code AA in Box 12.

4. Adding employer contributions into employee wage figures. This one usually comes up if a small business owner doesn’t realize the difference between employee deferrals and employer match.

They might see the company contributed $2,000 to Joe’s 401(k) and erroneously think that needs to be reported as some kind of compensation. It does not. Including employer 401(k) money in Joe’s wages on Form 941 or his W-2 will cause an over-reporting of income and over-withholding of tax (plus it messes up Joe’s personal taxes).

Avoid it: Keep employer contributions completely off the payroll tax forms. They are handled in your accounting books and on corporate tax returns instead.

5. Missing timely deposits of 401(k) withholdings (not directly a 941 issue, but important).

While not a line error on Form 941, another mistake is not remitting the 401(k) contributions to the plan promptly. The Department of Labor requires that employee contributions be deposited into the 401(k) trust as soon as administratively possible, typically within a few days after payroll (for small plans, under 7 days is a safe harbor).

If you wait too long, it’s considered a prohibited transaction (you’re essentially “using” employees’ retirement money for business cash flow). This won’t affect the 941, but it’s a fiduciary breach and can lead to penalties and required corrections.

Avoid it: Treat the 401(k) money with the same urgency as you treat payroll taxes – it’s not yours. Set reminders or automate the transfer to the plan provider each pay period.

6. Not reconciling Form 941 to W-2s at year-end. This is more of a general best practice than a mistake, but failing to reconcile can let an error slip by.

After the 4th quarter, before you file your W-2s/W-3, add up Lines 2, 5a, 5c from all four 941s and make sure they match the totals of W-2 Box 1, Box 3, Box 5 respectively (taking into account the annual Social Security cap). If they don’t match, something’s off – often due to a 401(k) or other pre-tax item being handled inconsistently. It’s easier to fix before filing final forms.

Pro tip: Doing this quarterly is even better – compare your current quarter’s 941 against your payroll register totals for that quarter.

Real-World Examples: 401(k) Contribution Scenarios on Form 941

Nothing beats examples to see how this works in practice. Below are three common scenarios showing how 401(k) contributions play out on Form 941. We’ll use simple numbers for clarity.

Scenario 1: Employee with a Traditional 401(k) Contribution

Situation: Jane earns $4,000 in gross wages in Q1. She contributes $400 (10%) to her traditional 401(k) this quarter. All her wages are below the Social Security wage base.

How to report on Form 941:

Explanation: Jane’s $400 deferral is excluded from Line 2, so Line 2 shows $3,600. But Lines 5a and 5c count the full $4,000, since the 401(k) deferral is still subject to FICA.

The Form 941 for Q1 will reflect $3,600 in wages/tips (Line 2), and under the tax calculation part, it will show $4,000 as Social Security wages and $4,000 as Medicare wages. The taxes calculated (income tax withheld, SS, Medicare) get reported accordingly. Jane’s W-2 at year-end would show $14,400 in Box 1 if she did the same each quarter ($16,000 gross minus $1,600 401k for the year), and $16,000 in Box 3 and 5.

Scenario 2: Employee with a Roth 401(k) Contribution

Situation: John also earns $4,000 in Q1. He contributes $400 to a Roth 401(k) instead of traditional.

How to report on Form 941:

Explanation: In John’s case, from a tax form perspective, it’s as if he didn’t contribute at all – because his contribution was after-tax. Line 2 still shows $4,000, and Lines 5a/5c also show $4,000. The only difference is that John’s $400 went into his Roth 401(k) account from his take-home pay.

On his W-2, Box 1 will be $16,000 for the year (assuming consistent pay), just like Box 3 and 5 are $16,000. Additionally, his W-2 Box 12 will show code AA with $1,600 (the total Roth contributions) to inform John/IRS of how much post-tax went into the Roth 401k. But again, on the 941, there’s nothing separate to do – you included everything in wages and that’s it.

Scenario 3: Employer Matching Contribution

Situation: Let’s say our company matches 50% of employee contributions. In Q1, Jane got $200 company match (50% of her $400), and John got $200 match (50% of his $400 Roth contribution).

How to report on Form 941:

Explanation: The company contributions of $400 total (for Jane and John) do not appear on the 941. They weren’t part of the employees’ wage compensation. So Lines 2, 5a, 5c remain based on the employees’ wages only (which we already accounted for in Scenarios 1 and 2).

There is no line on Form 941 for pension or 401(k) contributions by the employer. (On an annual corporate tax return, the business would include that $400 as a pension expense, and if this were a large plan, the total annual contributions would be reported on a Form 5500 filing – but none of that touches the 941 form or quarterly payroll reporting.)

These scenarios show how the numbers flow. The key pattern: **Only the employee’s gross wages and elective deferrals affect the form – and only by adjusting the taxable wage amounts on certain lines. Employer contributions happen outside of payroll tax reporting.

To cement this understanding, let’s quickly compare the outcomes side by side:

From this, you can see the only difference in the form’s eyes is with the traditional 401(k) deferral reducing the federal wage.

Pros and Cons of Pre-Tax vs. Roth 401(k) Contributions (Tax Perspective)

It’s worth briefly noting the advantages and disadvantages of traditional (pre-tax) and Roth (after-tax) 401(k) contributions, since we’ve discussed both. This can help employees decide and employers explain the options, though every individual’s situation will differ. Below is a quick comparison:

Both options share some pros: contributions (either type) often get an employer match (free money), and all growth in the 401(k) is tax-deferred while in the plan. The decision mostly hinges on whether you prefer the tax break now or later. Employers should ensure the payroll is set up to handle both correctly, and employees should be informed of the tax implications of each choice.

From the payroll admin perspective, just remember to categorize the deduction correctly. There’s no real “cons” for the employer in terms of reporting – it’s just making sure each type is handled in line with its tax nature.

Quick Insights from Laws and Court Rulings on 401(k) Contributions

You might wonder if there have been any legal battles or rulings about how 401(k) contributions are taxed. Generally, the rules are well-established in the statutes, so there’s little controversy. But a couple of points from the legal landscape reinforce what we’ve discussed:

• IRS Code and Consistency: Decades ago, there was a notion that income tax wages and Social Security wages should be consistent. In fact, in Rowan Cos. v. United States (1981), the Supreme Court ruled that absent a clear directive, the definition of wages should be the same for income tax withholding and FICA. However, Congress responded by explicitly decoupling some definitions. They amended the laws to specify that certain things (like 401(k) elective deferrals) are treated differently for FICA than for income tax. This is why today we have the split treatment – it’s baked into the law to promote retirement savings while still funding social insurance programs.

• Broad Definition of “Wages”: The courts have historically taken a broad view of what counts as wages for tax purposes. For example, in United States v. Quality Stores, Inc. (2014), the Supreme Court held that severance payments to laid-off employees were subject to FICA tax as wages. The takeaway is that unless something is clearly exempted by statute, it’s probably going to be considered “wages” for Social Security/Medicare. Elective deferrals like 401(k)s are explicitly addressed by statute (as discussed), so there wasn’t much doubt there – and indeed, they are not exempted from FICA. In short, the legal system supports the idea that you can’t easily dodge payroll taxes on compensation by calling it something else or deferring it, unless Congress says so.

• No Tax on Employer Contributions: It’s also well settled (in law and practice) that employer contributions to a qualified retirement plan are not treated as wages. They are not taxable to the employee when made. There hasn’t been serious legal challenge to that – it’s part of ERISA and the tax code incentives for employers to contribute to retirement. Just be aware that employer contributions have their own limits and rules, but none of that crosses into payroll reporting aside from ensuring what you claim as a deduction really went into the plan.

Overall, the legal framework around 401(k) contributions is stable: the IRS and courts apply the rules we’ve outlined consistently. That means if you follow the IRS instructions (which incorporate those rules), you’re standing on solid ground.

FAQ: Form 941 and 401(k) Contributions – Quick Answers

Q: Does Form 941 include 401(k) contributions?
Yes. It indirectly does – pre-tax 401(k) lower the taxable wage on Line 2, but those contributions are still counted in Social Security/Medicare wages on Lines 5a/5c (no separate 401(k) line exists).

Q: Do I report 401(k) contributions separately on Form 941?
No. There’s no separate field for reporting 401(k) dollars. You simply adjust the wage entries: exclude pre-tax contributions from “wages” and include them in the FICA wage totals as required.

Q: Are 401(k) contributions subject to Social Security and Medicare taxes?
Yes. All employee 401(k) elective deferrals are subject to FICA taxes. You and the employee both pay Social Security and Medicare tax on those contributions, and they’re reported as part of the taxable wage base for those taxes.

Q: Do 401(k) contributions reduce the federal income tax withheld from an employee’s paycheck?
Yes. Traditional 401(k) contributions reduce the employee’s current taxable income for federal withholding, so the employee’s income tax withholding is calculated on a lower amount (saving them taxes now).

Q: Should employer 401(k) matching contributions be counted as wages on Form 941?
No. Employer matches are not wages and do not appear on Form 941. They are not taxed to the employee, so you never include them in any wage or tax calculation on the 941.

Q: Can a Roth 401(k) contribution affect what I report on Form 941?
No. Roth 401(k) contributions are after-tax, so they do not change any wage figures on Form 941. You’ll report the full wages as usual – the Roth amount has no special treatment on the form (it’s already included like normal wages).

Q: Do all states follow the federal treatment of 401(k) contributions?
No. Most do, but a few states tax 401(k) contributions in the year earned (e.g., Pennsylvania). Always check state rules – in federal filings it’s pre-tax, but state taxable wages may include those contributions in certain states.

Q: Are 401(k) contributions reported on an employee’s W-2 form?
Yes. They affect the W-2 totals: pre-tax 401(k) reduces Box 1 wages, and the total annual contribution is noted in Box 12 with code D. Roth 401(k) contributions show in Box 12 code AA (and do not reduce Box 1).

Q: Does Form 941 account for other retirement plans like SIMPLE IRAs similarly?
Yes. Salary deferrals to SIMPLE or 403(b) or 457(b) plans are treated much like 401(k) on Form 941 – excluded from income-taxable wages, included in FICA wages. The principle for elective deferrals is the same.

Q: If I made a mistake on reporting 401(k) contributions on Form 941, can it be fixed?
Yes. You can file Form 941-X (Adjusted Quarterly Return) to correct a previously filed 941. For example, if you over-reported wages by including 401(k) contributions, a 941-X can correct Line 2 and claim a refund of overpaid tax. Always correct errors as soon as discovered.