Employer matching or nonelective contributions are deducted each payroll period when you process payroll as an expense separate from wages. Like employee deferrals, these amounts are listed as a liability until they are remitted to your 401(k) plan. Generally, these amounts and employee deferrals are pulled directly from your company’s operating account to the plan’s trust at the same time. When amounts are collected from the employer's operating account, the employer contribution liability is reduced to zero. The company may deduct the total expense amount on its business tax return.
Profit sharing contributions made after year’s end are deductible on your prior year’s tax return so long as the contributions are made before you file your tax return. How you record your profit sharing expense will depend on your company’s accounting practices. You can either use a liability account or a separate tax adjustment. With either method, you must ensure that the expense is deducted in only one tax filing year.
If your plan has employer matching calculated on an annualized basis, you will need to make true up contributions to any employees who did not receive their full match amounts over the course of the year. Similar to profit sharing contributions, true up amounts are deductible in the previous year, even though they are made after year-end.
Employer contributions to its 401(k) plan are always considered pre-tax and are not subject to Federal Income Tax, Social Security, Medicare, or other payroll taxes when made. In almost all instances, 401(k) employer contributions will also be deductible expenses for the employer.