“I own an s-corp and have a individual 401k plan for retirement. I know that I can contribut upto 16500 and the employer contribution of 25% of salary.”----> When you are self-employed, the maximum is 20% of net SE income after SE tax deduction, up to the $45,000 maximum. $15,500 is for 401K employees. In 2010 and 2011, 100% of W-2 earnings up to the maximum of $16,500 or $22,000 if age 50 or older can be contributed to a Solo 401k. A profit sharing contribution up to 25% of W-2 earnings can be contributed into a Solo 401k.
“I understand that IRS doesnt need me to pay fed income tax or fica on the employer contribution.”----> Incorporated businesses can generally deduct the salary deferral contribution from W-2 earnings and the profit sharing contribution as a business expense. On the contributions, there are 2 parts to the contributions for corporation.Salary Reduction - this is limited to $15,500 and is, as the name suggests, deducted from your salary. Note this contribution is subject to payroll taxes, FICA tax. Profit Sharing - this is the company match and is limited to 25% of your salary. The employee contributions are subject to FICA taxes so you can't just give money from your personal funds, they have to be payroll reductions. Employer contributions to qualified plans are never subject to FICA. When there is a voluntary contribution by the EE, that amount is not exempt from FICA. For self-employed plans, the owner is considered to be an EE.So, it is subject to FICA.
“My question is if the employer contribution is exempt from state of NJ SIT as well ?”----> 401 (k) contributions are made with pre-tax dollars. In other words, the money that is automatically deducted from your paycheck to contribute to your 401(k) is not subject to state and federal income taxes. New Jersey does not allow you to exclude from wages amounts you contribute to deferred compensation and retirement plans, other than 401(k) plans.
“ Any body can point me to the right document/link for this ?”----> NJ Division of Taxation - NJ Income Tax Wages