From my small business, I would like to contribute to my wife's retirement (which also reduces taxable income to the company).
My question is about how much total salary should be allocated to her to contribute $17,500 to her retirement account, without her paying additional taxes from her pocket/purse? This is because the amount contributed to retirement is subject to Social Security (6.2%) and Medicare taxes (1.45%). In addition, my company also has to match her SSA and Medicare taxes.
If I reverse calculate from $17,500 sent to her retirement account by adding her SSA + Medicare, it would come to $18,949.65 with employer match of $1,449.65 making the total $20,399.30.
In addition, if I create a W-2 for this salary, should I show the total compensation of $18,949.65 with $17,500 deferred? Does the difference (18,949.65 - 17,500 = 1,449.65) become subject to Federal and State income taxes? If so, I would need to allocate more than $18,449.65 to her to cover Federal and State income taxes. I appreciate your answers and insights into this.