Are Solo 401k Contributions Subject to FICA?

If you’re setting up a Solo 401k for 2025, you’re probably focused on maximizing your retirement savings and reducing current income taxes. But there’s another piece that often trips up self-employed filers and small business owners: how these contributions affect payroll taxes like Social Security and Medicare.

A Solo 401k can shelter a meaningful portion of your earnings from federal income tax. But it does not erase Social Security and Medicare obligations. In most cases, self-employment (SE) tax still applies to net earnings from your business. That means even though you deduct your Solo 401k contribution on your Form 1040, it won’t lower your SE-tax base.

For S-Corp owners paying themselves a W-2 salary, the tax treatment differs. Pre-tax employee deferrals reduce Box 1 wages (income tax), but they still show up in Boxes 3 and 5 (FICA wages). On the other hand, employer contributions generally bypass FICA altogether.

Knowing how each type of Solo 401k contribution interacts with SE tax or FICA can help you avoid payroll missteps, set accurate contribution targets, and time your cash flow wisely. Below, we walk through these distinctions and offer quick checks to run before cutting a paycheck or filing quarterly estimates. 

📌 Also read: 10 Biggest Solo 401k Benefits & Tax Advantages for 2024

FICA Rules Depend on Your Business Structure

How your Solo 401k contributions interact with Social Security and Medicare depends on how your business is taxed. Sole proprietors and partners generally owe self-employment (SE) tax, while S-Corp owners pay FICA through W-2 wages. These differences affect when and how your contributions reduce income or payroll taxes.

Let’s break it down by structure:

Schedule C or Partnership Income

Solo 401k contributions do not reduce self-employment tax.

If you’re a sole proprietor or a partner, Social Security and Medicare taxes are paid through the SE tax. This is figured using your net earnings from self-employment, not your taxable income. The key formula is:

✅ Start with net business profit
✅ Multiply by 92.35% (the IRS adjustment factor)
✅ Apply Social Security and Medicare tax rates

But here’s the catch. Your Solo 401k deduction doesn’t reduce this SE-tax base. That deduction is taken later, directly on Form 1040. The self-employment tax is already set by the time your Solo 401k contribution enters the picture.

📝 Note: Your contribution limit is based on a separate “plan compensation” figure. This is your net earnings, minus one-half of your SE tax, minus your own Solo 401k contribution. The IRS walks through this calculation in Schedule SE, Topic No. 554, and its self-employed retirement plan deduction page.

S-Corp W-2 Salary

Employee deferrals lower income tax — but not FICA.

If your business is taxed as an S-Corp, and you pay yourself a salary, your tax treatment shifts. W-2 wages are subject to normal payroll withholding, including FICA.

✅ Pre-tax elective deferrals reduce Form W-2 Box 1 (federal income tax wages).
❌ But those same deferrals still show up in Box 3 (Social Security) and Box 5 (Medicare).

So even though you’re lowering your income-taxable wages, you still pay Social Security and Medicare tax on the full W-2 amount before deferrals.

On the other hand, profit-sharing (employer) contributions are not subject to FICA. These amounts are made by the S-Corp on your behalf, and they’re treated as employer retirement benefits, not wages. That means no Social Security or Medicare tax is owed on them.

📝 Note: The IRS confirms these distinctions in both the Form W-2 Instructions and its FAQs on retirement plan taxation.

How Each Contribution Type Affects Payroll Taxes

Solo 401k contributions don’t all follow the same payroll tax rules. Some reduce your current taxable income, some don’t. Others still trigger payroll tax—even if they’re not taxed as income right away. Let’s break down how each type is treated under the IRS rules for FICA and withholding.

Pre-Tax Elective Deferrals

These reduce your federal income tax today, but still count as wages for Social Security and Medicare.

When you make pre-tax deferrals from W-2 wages, they are excluded from Box 1 of your Form W-2. That means you don’t pay income tax on that amount in the year you contribute. However, those dollars still appear in Boxes 3 and 5, which means they’re subject to both the employee and employer portions of FICA tax.

📝 Note: These amounts are taxed later as ordinary income when you take withdrawals in retirement (unless you roll them to another tax-deferred account). The IRS confirms this treatment in Publication 15, the Form W-2 Instructions, and its withholding FAQ for retirement plans.

Roth Elective Deferrals

Designated Roth contributions are made after tax and are treated the same as regular wages. They show up in all three W-2 boxes: Box 1 for income tax, Box 3 for Social Security, and Box 5 for Medicare. Both income tax and FICA are withheld in the year you contribute.

You don’t get a deduction now, but qualified withdrawals in retirement may be tax-free. To qualify, you’ll need to meet specific holding and age requirements under IRS rules.

Employer (Profit-Sharing) Contributions

These contributions are made by the business and are not treated as wages. They do not appear on your W-2 and are not subject to Social Security, Medicare, or federal income-tax withholding.

This type of contribution offers several tax advantages at the time it’s made:

✅ No FICA owed
✅ No income tax until withdrawal
✅ Helps build retirement savings without increasing payroll costs

📝 Note: This is one of the few ways business owners can contribute to a Solo 401k without triggering any immediate payroll tax.

Planning Tips to Manage SE and FICA Taxes

Solo 401k contributions can affect your income tax, payroll obligations, and quarterly payments — but only if you structure and time them carefully. Whether you’re self-employed or running payroll through an S-Corp, modeling the numbers first can help you stay accurate and avoid penalties.

If You’re a Sole Proprietor or Partner

Self-employment tax is calculated on net earnings, which are generally 92.35% of your business profit. This happens before you apply your Solo 401k deduction. That means:

✅ Your contribution reduces income tax
❌ It does not lower your SE-tax base

To get the numbers right:

📝 Note: Modeling this properly helps you avoid underpaying quarterly taxes. The IRS makes no distinction between underpaid SE tax and income tax—they’re combined in one penalty test.

If You Pay Yourself a W-2 from an S-Corp

Your Solo 401k deferrals reduce Box 1 wages for income tax. But those same wages still count toward Social Security and Medicare.

To account for this properly:

✅ Include the deferred amount in your FICA base
✅ Pay both the employee and employer portions of Social Security and Medicare
✅ Confirm payroll settings exclude deferrals from federal income-tax withholding, but include them in Boxes 3 and 5 of the W-2

📝 Note: Higher earners may also owe Additional Medicare Tax on wages over certain thresholds. Most payroll software handles this automatically in Form 941, but it’s worth checking for accuracy.

Cash-Flow Planning and Estimated Taxes

Quarterly planning doesn’t end once contributions are set up. You’ll need to make sure your estimated payments reflect your updated income, wages, and deductions.

Use these tools:

Safe-harbor tests are met by paying:

📝 Note: If your income or wages change midyear, revisit your estimates and adjust. Contributions made late in the year may not offset underpayments from earlier quarters.

Set Salary Before You Set Contribution Strategy

If you’re an S-Corp owner, keep the “reasonable salary” determination separate from your Solo 401k planning. The IRS expects you to base salary on market value, not contribution limits.

To stay compliant:

✅ Set your W-2 wage using factors like duties, experience, and industry standards
✅ Decide afterward how much of that wage to defer
✅ Keep documentation showing how you arrived at your salary

Run a Year-End Compliance Check

Before filing deadlines hit, make sure your tax documents match your Solo 401k records. A quick control check can prevent mismatches or audit issues.

✅ Compare payroll reports to W-2 drafts—do deferrals appear in the right boxes?
✅ For sole proprietors, check that Schedule SE uses the right net earnings
✅ Reconcile Form 941 with actual contributions to confirm FICA treatment

📝 Note: Mistakes in how deferrals are reported on the W-2 or Form 941 are among the most common issues flagged during reviews. A final check in Q4 can save a lot of backtracking later.

Key Takeaways

Solo 401k contributions can help lower your income tax, but they don’t eliminate your responsibility to pay Social Security and Medicare taxes. If you’re self-employed, SE tax still applies to your business earnings even after you make a retirement contribution. If you run payroll through an S-Corp, W-2 wages remain subject to FICA, including any portion deferred into the plan.

To avoid surprises, plan your contributions with both income and payroll taxes in mind. Before year-end, double-check your Schedule SE, W-2, and Form 941 to make sure your filings reflect how your Solo 401k was actually funded. 

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