A section 401(k) plan is a type of tax-qualified deferred compensation plan in which an employee can elect to have the employer contribute a portion of his or her cash wages to the plan on a pre–tax basis. These deferred wages (commonly referred to as elective deferrals) are not subject to income tax withholding at the time of deferral, and they are not reflected on your Form 1040  since they were not included in the taxable wages on your Form W-2 However, they are included as wages subject to social security, Medicare, and federal unemployment taxes.
The amount that an employee may elect to defer to a 401(k) plan is limited. Therefore, your elective contributions may be limited based on the terms of your 401(k) plan. Refer to Publication 525, Taxable and Nontaxable Income, for more information about elective deferrals. Employers should refer to Publication 560, Retirement Plans for Small Business, for information about setting up and maintaining retirement plans for employees, including 401(k) plans.
Many 401(k) plans allow employees to make a hardship withdrawal because of immediate and heavy financial needs. Generally, hardship distributions from a 401(k) plan are limited to the amount of the employee's elective deferrals only, and do not include any income earned on the deferred amounts. Hardship distributions are not treated as eligible rollover distributions.

Distributions received before age 59 1/2 are subject to an early distribution penalty of 10% additional tax unless an exception applies. For more information about the treatment of retirement plan distributions, refer to Publication 575, Pension and Annuity Income.

Use the tax laws to increase Your Contributions

The Paycheck Analysis is a system created to locate money in your paycheck that can be used to lower your taxes, show you how you can increase your contributions, and still have you taking home the same pay. By collecting your tax information we can create a tax profile. This profile is used in the Paycheck Analysis. The final result is a comprehensive plan we can apply to rearrange your paycheck deductions. This will improve the use of your tax deductions, and may allow you to apply a portion of your tax withholdings towards a savings program, while lowering your taxable income at the same time.