Hey all! I have two [unrelated] questions that I have been pondering over recently, thought the experts here may be able to give me a hand.

1. After reading IRS pub. 590, I'm still not 100% clear on the definition of "contribution" to one's 401(k) plan. The three facts I know are this, 1) My plan limits one to a maximum contribution of 16% of their gross pay, to be plaed in the 401(k) before taxes; 2) my company matches the first 6% of gross at 83.33333% (or another 5% gross); and 3) under new federal guidelines, the maximum allowed non-taxable contribution to a 401(k) is $11,000. So my question is, is that $11,000 just my part, or does it include my employer's match? If I made 68,750 gross annually, could I put my full 16% in there ($11,000), and then have my employer match me at an additional 3,437.50 for a total "contribution" to my 401(k) that year of $14,437.50; or...
is it 11,000 total between me and my employer which means I could contribute my maximum allowed 16% if I were to make 52,380.95 or less annually, because 16% of that oplus my employer's 5% would total 11,000 for the year?

and now,
2. My sister-in-law wishes to "employ" my wife (her sister) as a nanny-type of person for her two children. After reading the pubs. on Household employees, etc. it seems that the IRS just assumes that any type of babysitting or nanny work will constitute an employer-employee relationship, with my sister-in-law needing to withold the appropriate taxes, keep the appropriate records, etc. Is it possible to keep things simple and say that it is a contractor-contractee relationship instead [i.e. my sister-in-law contracts her sister to watch her children while she is at work or in class, but doesn't place any further restrictions on how or where this is to be done], and all my sister-in-law has to do is give a 10990-MISC at the end of the year, and my wife and I deal with the SE tax, the quarterly-estimated payments, etc?

Thanx in advance for your help! TTFN!

-WJVonAlt

The $11,000 is the max *you* can contribute.

"The $11,000 is the max *you* can contribute." That's pretax. You can contribute additional after tax funds up to the full percentage max. So the percentage max is sum of before and after tax contributions. Employer's match is not included in either number.

If you are classified as highly compensated employee, usually management, then your total contribution is limited to a different total figure--that depends on contributions level by other employees.

If you are classified as highly compensated employee, usually management, then your total contribution is limited to a different total figure--that depends on contributions level by other employees.

True, but many companies offer a deferred compensation plan for 'highly compensated' individuals. If you are one of those people, check with your HR department - then, read the fine print.

RK

As for question #2...

Disclaimer: please get confirmation on all of this, I'm only speaking from what I've observed as a part-time tax preparer in a town where babysitting is a *very* common form of SE.

Most do it as SE. Nothing is withheld along the way, it's up to the sitter/nanny-type to report the income and pay the taxes (most don't pay quarterly and get stuck with it at the end of the year, but if it were me, I'd pay quarterly).

The person whose kids are getting watched can deduct the expenses to get a Child and Dependent Care Credit. That causes trouble for sitters who don't report the income. The IRS doesn't seem to care if people are related, just so long as the reported $number$ match up.

If any of the sitting/nannying is done in the home of the sitter/nanny, many expenses are deductable to offset the taxes on that income.

On piece of advice, person-to-person: if she decides to go the SE route, (which does seem to make more sense) then she may want to get herself an Employer Identification Number (EIN) so she won't have to use her SSN on all of the SE related materials.

Hope this helps,
WayStar

Thanks alot, everyone, for clearing that up for me. That's the way I believed it worked out, but I couldn't find it printed in black and white anywhere (or perhaps I did, and read it a dozen times, and still didn't get it!).

Also, the "normal" rules will apply to me, this helps out completely. I am a "management" employee, but so is pretty much everyone else in my company who earns salary as opposed to hourly wage. So I don't have to worry about any of the rules for those who may be "highly compensated," but maybe someday... ;)

Thanks again!

-WJVonAlt