Workers can contribute up to $24,500 to a 401(k) in 2026, while those age 50 or older can add a catch-up contribution of $8,000, with a higher $11,250 catch-up available to workers who turn 60, 61, 62, or 63 during the year if the plan allows it.

Those headline limits answer only part of the question. Tax treatment changes depending on whether money goes in as a traditional pre-tax 401(k) deferral or a Roth 401(k) contribution. It also depends on whether the money comes from the worker or the employer, and how the amounts appear on Form W-2.

Employees choose elective deferrals from salary. Employers make separate contributions through matching or nonelective payments. That distinction controls how the money is taxed, reported and counted under plan rules.

Pre-Tax vs. Roth Contributions

IRS guidance treats a traditional pre-tax 401(k) deferral as excluded from federal income-taxable wages when contributed. That usually lowers federal income tax withholding on a paycheck.

Payroll taxes work differently. Elective deferrals other than designated Roth contributions remain included in wages for Social Security, Medicare and FUTA taxes. This means a worker can see lower federal taxable wages without seeing the same reduction in Social Security and Medicare wages.

That difference matters on Form W-2. Pre-tax 401(k) elective deferrals do not go in the “Wages, tips, other compensation” box. However, employers must include them in Social Security wages and Medicare wages and tips, report the amount in Box 12, and check the retirement plan box in Box 13.

For 2026 reporting, Box 12 uses Code D for elective deferrals under a section 401(k) cash or deferred arrangement. Workers reviewing a year-end Form W-2 should expect that code for pre-tax 401(k) salary deferrals, along with Box 13 checked if they were covered by the retirement plan.

Roth contributions follow a different tax path. A Roth 401(k) contribution comes from after-tax wages, stays included in gross income when contributed, and must be maintained in a separate Roth account.

Qualified distributions from that Roth account may be excluded from income if the requirements are met. The current-year tax benefit, though, is not the same as with a pre-tax contribution, because Roth deferrals do not reduce current federal income-taxable wages.

The IRS treats traditional and Roth employee deferrals the same for the annual limit. A worker cannot put $24,500 into a pre-tax 401(k) and another $24,500 into a Roth 401(k) in the same year, because both count toward the same employee deferral ceiling.

Roth deferrals also appear differently on wage statements. Employers report designated Roth contributions in Box 12 of Form W-2 with Code AA, not Code D.

That reporting split makes year-end wage statements a practical check on payroll accuracy. A worker using both pre-tax and Roth contributions should see the proper Box 12 codes and amounts, while Box 13 should still show retirement plan coverage.

Employer Contributions and Reporting

Employer money does not fit into those employee deferral boxes. Matching contributions and nonelective contributions are employer contributions, not employee salary deferrals. The IRS instructions say employer matching contributions are not reported as elective deferrals in Box 12.

Some employer nonelective or profit-sharing contributions also do not have to be reported on Form W-2, though they may appear in Box 14. That means the Box 12 figure generally reflects the employee’s own 401(k) deferrals, not the combined value of employee and employer funding.

Nonelective contributions can go into a plan even when an employee does not defer any salary. Employers use them in safe harbor 401(k) plans, profit-sharing arrangements and other designs. However, plan documents govern who gets them, how much each employee receives, and how vesting and compensation rules apply.

Employer Deduction Limits and Annual Additions

Deduction rules for employers sit on a separate track from employee contribution limits. IRS Publication 560 says employer deductions for contributions to a defined contribution plan generally cannot exceed 25% of compensation paid or accrued during the year to eligible employees participating in the plan.

Elective deferrals do not count against that 25% deduction limit. IRS guidance also says compensation includes elective deferrals, and the maximum compensation taken into account for each employee is $360,000 for 2026.

Another cap applies to the total amount that can land in one participant’s account. The 2026 annual additions limit for a defined contribution plan is $72,000, excluding catch-up contributions.

That ceiling usually includes employee deferrals, employer matching contributions, employer nonelective contributions and forfeiture allocations. High earners, owner-employees and solo 401(k) users often have to watch that number as closely as the regular employee deferral limit.

Special Situations: Self-Employed and Multiple Jobs

Self-employed taxpayers face a more technical calculation. In a solo 401(k), also called a one-participant 401(k), the owner acts as both employee and employer. He or she may make elective deferrals up to the annual limit plus employer nonelective contributions up to the permitted amount.

The IRS does not let self-employed owners treat all business profit as available compensation for that purpose. Retirement plan calculations for self-employed individuals require reducing net earnings by one-half of self-employment tax and by contributions for the owner.

Workers with more than one job face another common trap. The employee 401(k) deferral limit applies by person, not by employer or by plan.

Someone who changes jobs midyear, works two W-2 jobs, or holds a workplace plan while also contributing to a solo 401(k) must track total deferrals across all plans. Payroll systems at a new employer usually do not know what the worker already deferred at a previous job unless the employee provides that information.

Cross-Border and Foreign National Considerations

Cross-border employees and foreign nationals often have a second layer of tax questions. H-1B workers, L-1 employees, F-1 OPT workers, NRIs, green card holders and dual-status taxpayers can face added complexity. This is because U.S. retirement plan treatment may not match the way another country treats the same contribution or later withdrawal.

A pre-tax 401(k) contribution can reduce U.S. federal income-taxable wages while another country treats the contribution differently. A Roth 401(k) may offer tax-free qualified distributions under U.S. rules, but foreign tax treatment can vary, particularly after a worker leaves the United States.

Recordkeeping matters in those cases. Annual Form W-2 statements, Box 12 codes, Form 1099-R, plan statements, Roth contribution records, rollover records, employer match records and proof of tax residency can all become relevant later.

SECURE 2.0 and Roth Employer Contributions

SECURE 2.0 added another reporting wrinkle. It allows plans to let employees designate certain matching and nonelective contributions made after December 29, 2022, as Roth contributions. Those designated Roth matching and nonelective contributions are not subject to federal income tax withholding and generally are not subject to Social Security or Medicare tax withholding.

They still create a reporting obligation. IRS guidance says designated Roth nonelective contributions and designated Roth matching contributions must be reported on Form 1099-R for the year in which they are allocated.

That is different from ordinary employee Roth deferrals, which move through payroll and show up on Form W-2. Employers and payroll providers that offer Roth treatment for employer contributions have to separate those reporting streams carefully.

Common Mistakes to Avoid

Several mistakes recur across workplaces and tax returns. Employees often assume pre-tax and Roth deferrals each get their own annual limit. They may treat employer match as part of the employee’s Box 12 amount, or forget that pre-tax 401(k) contributions still count for Social Security and Medicare wage purposes.

Business owners make different errors. They mix up the employee deferral limit, the employer deduction limit, the annual additions cap and the compensation cap. Alternatively, they use gross business income instead of the required self-employment calculation for a solo 401(k).

By year-end, the practical review is straightforward. Workers should confirm whether contributions were pre-tax or Roth, check the Box 12 code on Form W-2, confirm Box 13 retirement plan status, and total employee deferrals across every employer before assuming they stayed within the 2026 limit.

Employers face their own checklist in payroll and plan administration. They have to separate employee elective deferrals from matching and nonelective contributions, apply the right tax treatment, and keep reporting straight when Roth features extend beyond employee salary deferrals to employer contributions that trigger Form 1099-R.

The 2026 401(k) rules leave little room for shorthand. The annual employee limit is $24,500, catch-up rights can raise that amount for older workers, the annual additions ceiling is $72,000, and wage reporting on Form W-2 still determines whether payroll treatment matches what the plan and the tax code require.