Does Employer 401k Match Count as Income?

An employer’s matching contribution to a 401(k) plan is not considered taxable income in the year the contribution is made. This means the funds are not included in the gross income figure on your annual Form W-2, and you do not pay current income taxes on this amount. The money is part of your overall compensation, but its taxation is postponed until a later date.

The Principle of Tax Deferral

The core concept governing 401(k) plans is tax deferral, which applies to both your contributions and your employer’s match. Tax deferral means you do not pay taxes on the money as it is contributed or as it grows within the account. The investments inside the 401(k) can generate earnings through dividends, interest, and capital gains, which are automatically reinvested.

This tax-deferred growth allows an employer match to grow more quickly than it would in a standard brokerage account where earnings are taxed annually. The absence of this “tax drag” allows earnings to compound on a larger base.

Treatment for Different Tax Types

For federal and most state income tax purposes, an employer 401(k) match is excluded from your taxable wages and is not reported as such on your Form W-2.

A distinction exists for payroll taxes under the Federal Insurance Contributions Act (FICA), which fund Social Security and Medicare. While your own 401(k) contributions are made from income already subjected to FICA taxes, employer matching contributions are exempt. This means neither you nor your employer pays the 7.65% FICA tax on the matched funds.

Employer Match and Contribution Limits

The Internal Revenue Service (IRS) sets an annual limit on how much an employee can contribute to their 401(k) from their salary. For 2025, this limit is $23,500 for individuals under age 50. Those age 50 and over can make an additional catch-up contribution of $7,500. Beginning in 2025, individuals aged 60, 61, 62, and 63 may be eligible for a higher catch-up contribution of up to $11,250, if their plan allows it.

Your employer’s matching contributions do not count toward these employee-specific limits. The IRS establishes a separate, higher limit for total contributions to a 401(k), which includes your contributions, the employer match, and other employer contributions. For 2025, this overall limit is the lesser of 100% of your compensation or $70,000. This structure allows your total retirement savings to exceed your personal contribution ceiling.

The Role of Vesting in Employer Contributions

You do not typically have full ownership of an employer match immediately. Ownership is determined by a vesting schedule, the timeline set by the employer for you to gain a non-forfeitable right to the matching contributions. If you leave your job before you are fully vested, you may have to forfeit some or all of the money your employer contributed.

There are two common types of vesting schedules. The first is “cliff” vesting, where you become 100% vested after a specific period of service, such as three years. The second is “graded” vesting, where you gain ownership in increments over time, for example, 20% per year for five years.

Taxation at Withdrawal

The tax deferral on your employer’s 401(k) match does not mean the money is never taxed, as the liability is postponed until you withdraw the funds. When you take a distribution from your 401(k), the portion that comes from the employer match and its earnings will be taxed as ordinary income. The tax rate you pay will be based on your total taxable income in the year of the withdrawal.

This rule applies even if your own contributions were made to a Roth 401(k). While your Roth contributions and their earnings can be withdrawn tax-free in retirement, employer matching funds are always contributed on a pre-tax basis. Plan administrators maintain separate accounting for pre-tax and post-tax funds, so any distribution will have a taxable portion from the vested employer match.