2

I am getting my next paycheck on Jan 2nd, 2020. The paycheck covers work performed in 2019. Will the paycheck go towards my 2019 or 2020 401K contribution limit?

7

W-2 and 401(k) are based on the Pay Date, not the Period Beginning and Period Ending dates.

Split things up would be a big complication.

Individual wage and 1099 employees always(?) whether they know it or not, use the cash method of accounting. According to IRS Publication 538 "Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year."

| improve this answer | |
  • 1
    do you have a source for this? – jgozal Dec 25 '19 at 17:58
  • @jgozal my own experience. Individual wage and 1099 employees always(?) whether they know it or not, use the cash method of accounting. According to irs.gov/pub/irs-pdf/p538.pdf "Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year." – RonJohn Dec 25 '19 at 18:23
  • thanks @RonJohn, I only ask because my CFP told me the opposite: that my employer is required to withhold the amount from the check, so if my pay period is from Dec 16 -31, it will be considered a 2019 contribution. Hence my confusion. I will ask him as well to provide some support as well. – jgozal Dec 25 '19 at 19:04
  • The IRS article you reference makes a lot of sense in terms of how the IRS views receipt of income. I wish there was more discussion about W2 employees. – jgozal Dec 25 '19 at 19:08
  • 1
    @jgozal: my experience: I once made the whole year's worth of 401(k) contributions on January 1 (which were counted for the new year, not the previous year), on a paycheck that was "for work performed" in December of the previous year but dated on January 1 because the company paid on the 1st of the month at that time – user102008 Dec 25 '19 at 19:31

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.