Do Companies Match 401k on Bonus?

Whether a company’s 401(k) matching contributions include bonus income depends on specific factors. Understanding these elements is important for effective retirement planning.

How 401(k) Matching Applies to Bonuses

A company’s 401(k) matching contributions on bonus income are not universal, depending on the specific design of the employer’s 401(k) plan. Some plans include bonus payments in their “eligible compensation” definition for matching calculations, while others explicitly exclude them or impose caps on total compensation.

If a bonus is included in the plan’s eligible compensation definition, the employer’s matching formula generally applies to that income as it would to regular salary. For instance, if a plan matches 50% of an employee’s deferrals up to 6% of compensation, the bonus would be part of the total compensation used in the calculation.

All 401(k) contributions are subject to annual limits set by the Internal Revenue Service (IRS). For 2025, the employee elective deferral limit is $23,500, with an additional catch-up contribution of $7,500 for those aged 50 or older, and $11,250 for individuals aged 60-63.

The total combined contributions from the employee and employer, known as annual additions, cannot exceed $70,000 for 2025. For individuals aged 50 and over, including catch-up contributions, this limit can be $77,500 or $81,250, depending on their age. Even if a bonus significantly increases total compensation, overall 401(k) contributions cannot exceed these IRS-mandated thresholds. The plan document dictates how these limits interact with bonus income.

Compensation Definitions in 401(k) Plans

The definition of “eligible compensation” in a 401(k) plan document determines whether bonus payments receive an employer match. These definitions dictate what types of income are considered when calculating the employer’s contribution. The plan sponsor establishes these definitions, adhering to IRS guidelines.

Common definitions include “W-2 wages,” “base pay only,” “regular compensation,” or “total compensation.” If a plan specifies “base pay only,” bonuses, commissions, and overtime are typically excluded. Conversely, if the definition is “total W-2 compensation” (meaning the amount reported in Box 1 of Form W-2), bonuses are generally included, as W-2 wages encompass most forms of taxable income.

Internal Revenue Code Section 415(c)(3) provides a broad definition of compensation, often used as a baseline, which includes wages, salaries, and other amounts includable in an employee’s gross income. Many plans adopt this definition or a similar “safe harbor” definition that satisfies Section 414(s) for non-discrimination testing. A plan that excludes bonuses for matching must ensure its compensation definition does not unfairly favor highly compensated employees. The annual compensation limit for contribution calculations in 2025 is $350,000.

Effect of Bonus Types on Matching

Different types of bonuses can interact with a 401(k) matching policy based on the plan’s compensation definition. For instance, an annual performance bonus might be treated differently than a one-time sign-on bonus or a discretionary spot bonus, depending on how the plan defines “compensation” and its timing rules.

If a plan’s definition of eligible compensation includes all W-2 wages, most types of bonuses—such as annual performance bonuses, retention bonuses, or sales commissions—would typically be included for employer matching. However, some plans might explicitly exclude certain types of “extraordinary” or “irregular” compensation, even if they appear on a W-2.

The timing of a large bonus payment can also influence an employee’s ability to maximize their 401(k) contributions, as contributions are generally limited annually regardless of when income is received. A substantial bonus could enable an employee to reach their annual elective deferral limit earlier in the year. Once this deferral limit is reached, they cannot make further pre-tax or Roth contributions for the remainder of the year. Some plans might cease employer matching once the employee stops contributing, even if the employee’s total compensation for the year, including the bonus, is below the IRS compensation limit of $350,000.

Finding Your Company’s Matching Rules

To determine your company’s 401(k) matching policy regarding bonuses, the primary resource is your plan’s Summary Plan Description (SPD). The SPD is a required document outlining the rules and provisions of your 401(k) plan in clear language. Mandated by the Employee Retirement Income Security Act (ERISA), it details eligibility, contributions, vesting, and how compensation is defined.

You can typically find the SPD through your company’s human resources portal, the 401(k) plan administrator’s website, or by requesting a copy from your HR department. The SPD defines “eligible compensation” for employer matching contributions and clarifies any exclusions or limitations for bonus income.

If you have questions after reviewing the SPD, contact your HR department or the 401(k) plan administrator. These resources can clarify how your bonus payments will be treated for 401(k) matching, helping you plan your finances and maximize retirement savings.