Taxpayer (TP) is 100% owner of an S-Corp.

TP takes a W-2 salary, usually significantly more than 60% of the net income of the corp. Many years it's closer to 90%. I've been bugging TP for years, pointing out the whole point of an S-Corp is that you don't have to pay self-employment tax on all of your earnings, but the TP doesn't listen.

This year, the business didn't do nearly as well as TP expected. TP took $99k in salary, but the Corp is showing a loss of $45k.

The problem is, TP made pension contributions around $19k.

From what I've read in IRS literature, pass-through income does not count toward the employee's income to determine that pension %. 

Does that mean losses also don't decrease the employee's income?

Because a part of me is thinking this PT is looking at excess contributions, because their income is only $54k, meaning the pension can't be more than ~ $10k.

But if the loss is not figured in, then 19k is less than 20% of $99k, so we're ok.

(And don't lecture me about why they kept paying themselves while the business was losing money ... I have already lectured the client about it.)

Thanks in advance!