401(k) deferrals in S-corp payroll: how pre-tax contributions work
Updated November 15, 2026 · General information, not tax or legal advice
If your S corporation has a 401(k), including a one-participant (solo) 401(k) for an owner, the money you defer from your paycheck has to be handled correctly in payroll. A traditional (pre-tax) deferral lowers federal and state income tax withholding, but it does not lower Social Security, Medicare or unemployment tax. This guide covers the limits, the paycheck math, the W-2, and when the money has to reach the plan.
The figures below are the IRS limits for 2026 and 2027. Check the IRS each fall for the next year's numbers.
Traditional deferrals vs. Roth deferrals
A traditional 401(k) deferral is taken out of pay before income tax. It isn't included in W-2 box 1 wages, so it lowers federal income tax withholding on the paycheck (IRS Topic 424).
A Roth 401(k) deferral is made after tax. It stays in box 1 wages and doesn't lower withholding. Both kinds count toward the same yearly limit.
Selfroll currently handles traditional deferrals only.
The yearly limits
The IRS sets the limit on an employee's elective deferrals under section 402(g) each year:
| Year | Deferral limit | Age 50+ catch-up | Ages 60 to 63 catch-up |
|---|---|---|---|
| 2026 | $24,500 | $8,000 | $11,250 |
| 2027 | $25,500 | $8,500 | $11,750 |
Sources: IRS Notice 2025-67 for 2026 and IRS news release IR-2026-136 (Notice 2026-66) for 2027.
A few things to know:
- The limit is per person, not per plan. It covers all of a person's 401(k), 403(b) and similar deferrals for the year, even across employers.
- Catch-up contributions are extra amounts for people 50 and older if the plan allows them. Starting in 2026, someone whose prior-year Social Security wages from the employer were over an IRS threshold ($150,000 for 2026 catch-ups, $155,000 for 2027) must make catch-ups as Roth. Selfroll doesn't calculate catch-ups yet.
- Employer contributions (a match or profit-sharing contribution the company makes) don't come out of the paycheck. They aren't Social Security or Medicare wages either. They have their own limits, which your plan provider can explain.
How a pre-tax deferral changes the paycheck
Take an owner paid $5,000 a month in 2027 who defers $500 a month, files single on Form W-4, and claims one allowance on the OK-W-4:
- Federal income tax is figured on $4,500 instead of $5,000.
- Oklahoma income tax is figured on $4,500 too. Oklahoma uses the federal meaning of wages for withholding (68 O.S. section 2385.1).
- Social Security and Medicare are still figured on the full $5,000. Elective deferrals are wages for these taxes (IRS Topic 424).
- Federal unemployment (FUTA) is still figured on the full $5,000 (IRS Topic 424).
- Oklahoma unemployment is still figured on the full $5,000. Oklahoma's definition of unemployment wages keeps 401(k) deferrals in (40 O.S. section 1-218).
Here's what that example comes to with the 2027 draft federal tables:
- Federal withholding drops from $412.67 to $352.67.
- Oklahoma withholding drops from $180 to $157.
- Take-home pay is $3,607.83, and $500 goes to the plan.
The company's cost doesn't change, because the employer taxes are based on the full $5,000.
When the money has to reach the plan
Deferrals belong to the employee as soon as they're withheld. Department of Labor rules say to deposit them as soon as they can reasonably be separated from company money. For plans with fewer than 100 participants, deposits made within 7 business days of payday are treated as on time (29 CFR 2510.3-102).
You make this transfer yourself, through your plan provider's website, the same way you pay net pay and tax deposits.
On the W-2 and Form 941
- Box 1 and box 16: wages minus traditional deferrals.
- Boxes 3 and 5: full wages, with deferrals included, up to the Social Security wage base for box 3.
- Box 12, code D: the total traditional 401(k) deferrals for the year (Instructions for Forms W-2 and W-3).
- Box 13: check "Retirement plan."
- Form 941 line 2: the same wages that go in W-2 box 1. Lines 5a and 5c use the full Social Security and Medicare wages.
A one-participant 401(k) whose assets go over $250,000 generally files Form 5500-EZ each year (IRS: One-participant 401(k) plans). Your plan provider will tell you if it applies.
Where Selfroll fits
Enter a traditional deferral per paycheck on the employee's setup screen, or change it when you run payroll. Selfroll lowers federal and Oklahoma income-tax wages, and stops at the year's limit. It also adds a "send the deferral to the plan" step with the 7-business-day date, and fills W-2 box 12 code D. It doesn't move the money or talk to your plan provider. You do that.
See also How to pay yourself from an S corporation and How to file W-2s and W-3 through SSA Business Services Online.
Sources
- IRS, Topic no. 424, 401(k) plans
- IRS, Notice 2025-67 (2026 limits) and IR-2026-136 (2027 limits)
- IRS, General Instructions for Forms W-2 and W-3
- IRS, One-participant 401(k) plans
- U.S. Department of Labor, 29 CFR 2510.3-102
- Oklahoma Statutes, 68 O.S. section 2385.1 and 40 O.S. section 1-218
This guide is general information, not tax or legal advice. Check the current IRS and plan documents, or ask a tax professional, before you rely on it.