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401(k) Payroll Deductions: Employer Compliance Guide
The 2026 401(k) deferral limit is $24,500, with an $8,000 catch-up at age 50 and an $11,250 catch-up from 60 to 63. Deposits are due as soon as they can reasonably be segregated, never later than the 15th business day of the following month. BEG codes the deduction and stops deferrals at the limit, at $45 per employee monthly.
The 2026 limits
| Category | 2026 limit |
|---|---|
| Standard elective deferral | $24,500 |
| Age 50+ catch-up | +$8,000 ($32,500 total) |
| Age 60 to 63 catch-up (SECURE 2.0) | +$11,250 ($35,750 total) |
These 2026 limits, set by IRS Notice 2025-67, apply to 401(k), 403(b), governmental 457, and TSP deferrals alike. Payroll has to stop withholding automatically once an employee crosses their applicable limit, not rely on the employee to notice.
The deposit deadline most employers get wrong
The single biggest 401(k) payroll mistake is treating the 15th business day of the following month as the deadline. It is not. DOL requires that employee deferrals withheld from pay be deposited with the plan as soon as they can reasonably be segregated from the employer's general assets, and the 15th business day is only the outer limit, never a target. A 25 to 100 employee plan that has the operational ability to move the money in two days is expected to do exactly that, not wait three weeks because the rule technically allows it.
Smaller plans do get a real cushion: for plans with fewer than 100 participants, deferrals deposited within 7 business days of being withheld are deemed timely under a safe harbor. A late deposit outside that window is treated as a prohibited transaction, which has to be corrected and shows up on the plan's Form 5500.
How a 401(k) deferral is actually taxed
Per IRS Publication 15, elective 401(k) deferrals are generally exempt from federal income tax withholding, subject to the 402(g) annual limit, but they remain taxable for Social Security, Medicare, and FUTA. That is a meaningfully different tax treatment than a section 125 cafeteria plan deduction, which is exempt from federal income tax, FICA, and FUTA all at once. Coding a 401(k) deferral as if it behaved like a section 125 deduction understates the FICA and FUTA base.
Annual reporting
The plan itself files Form 5500, or Form 5500-SF for a small plan, electronically through EFAST2, and the plan administrator has to furnish a summary annual report to participants every year. This sits on top of, not instead of, the per-payroll deposit obligation.
What BEG codes, and what stays with the plan administrator
BEG sets up the deferral, Roth, catch-up, and loan-repayment deduction codes in the client's payroll system, stops deferrals at the annual limit automatically, and produces the per-payroll contribution file the recordkeeper needs. Funding the contribution to the plan on time is the client's fiduciary duty, not BEG's. The plan document, nondiscrimination testing, Form 5500, and any late-deposit correction stay with the client's third-party administrator or ERISA counsel, and deeper 401(k) coordination beyond the deduction file is part of the Managed Benefits add-on, not the base payroll fee.
Full BEG managed payroll keeps deferral coding and limit enforcement current every pay period.
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Frequently Asked Questions
What is the 2026 401(k) employee deferral limit?
Twenty-four thousand five hundred dollars for 401(k), 403(b), governmental 457, and TSP deferrals, set by IRS Notice 2025-67.
What are the 2026 catch-up contribution limits?
An extra $8,000 for employees age 50 and over, bringing the total to $32,500. Employees age 60 to 63 get a higher catch-up of $11,250 under SECURE 2.0, bringing their total to $35,750.
Is the 15th business day really the 401(k) deposit deadline?
No, and this is the most common mistake. DOL requires deferrals to be deposited as soon as they can reasonably be segregated from general assets, with the 15th business day of the following month only as an outer limit, never a target date. A 25 to 100 employee plan that can move money in two days is expected to.
Is there a safe harbor for small 401(k) plans?
Yes. For plans with fewer than 100 participants, deferrals deposited within 7 business days of being withheld are deemed timely.
What happens if a 401(k) deposit is late?
A late deposit is treated as a prohibited transaction, which has to be reported and corrected, and it shows up on the plan’s Form 5500 filing.
Are 401(k) deferrals subject to Social Security and Medicare tax?
Yes. Elective 401(k) deferrals are generally exempt from federal income tax withholding, subject to the annual limit, but they are still taxable for Social Security, Medicare, and FUTA. That is different from a section 125 cafeteria plan deduction, which is exempt from all three.
What annual filing does a 401(k) plan require?
Form 5500, or Form 5500-SF for small plans, filed electronically through EFAST2, plus a summary annual report the administrator furnishes to participants each year.
What does BEG handle on 401(k) payroll deductions?
BEG sets up the deferral, Roth, catch-up, and loan-repayment deduction codes in the client's payroll system, stops deferrals automatically at the annual limit, and produces the per-payroll contribution file the recordkeeper needs, all inside standard managed payroll at $45 per employee monthly.
Does BEG handle 401(k) plan compliance and nondiscrimination testing?
No. Funding the contribution to the plan on time is the client’s fiduciary duty. Plan document work, nondiscrimination testing, Form 5500, and late-deposit corrections stay with the client’s third-party administrator or ERISA counsel; deeper 401(k) coordination is part of the Managed Benefits add-on, not the base payroll fee.
Related Resources
Anthony leads payroll solutions at Business Executive Group, a national managed payroll firm serving businesses across industries. BEG manages payroll at $45 PEPM, all-inclusive, with deep expertise in compliance, multi-state filing, and industry-specific payroll requirements. Get instant pricing at beghr.com.
Sources: IRS Notice 2025-67, 2026 Retirement Plan Limits; DOL, 401(k) Plans for Small Businesses; IRS Publication 15. This is general compliance information, not tax or legal advice.
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