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Taxes Withheld from Profit Sharing Deposits Made to Tax Deferred 401(k) Accounts

Date: March 8, 2019

Taxes Withheld from Profit Sharing Deposits Made to Tax Deferred 401(k) Accounts Explained


We have received a number of inquiries from Flight Attendants who elected to have their Profit-Sharing proceeds directed to a tax deferred 401(k) account and are noticing a variety of taxes, including Federal Income taxes, being withheld.


While it is true that money directed into a tax deferred 401(k) account is not subject to Federal Withholding, even when directed into the tax deferred 401(k) account, the Profit-Sharing proceeds are subject to FICA (Social Security and Medicare) withholding, CA state disability withholding as well as some other State and Local taxes, where applicable.  


Further, the money withheld from the Profit-Sharing payment to pay these FICA, state disability and other taxes is considered wages for the purposes of the Federal tax code.   As a result, the money withheld from the Profit Sharing to pay these various tax and disability amounts is reported as wages and is further subject to Federal tax withholding.  It is for this reason that you will see Federal Taxes withheld from the Profit-Sharing proceeds that have been directed into the 401(k) accounts.

Should you have additional questions, please contact your Local Council office.

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