How is the relevant compensation calculated for the deduction limit under IRC 404(a)(3)?

The relevant compensation for the deduction limit under IRC 404(a)(3) is calculated as 25% of total employee compensation. This provision allows employers to deduct contributions made to a qualified retirement plan, such as a 401(k), but the deduction is limited to a specific percentage of total compensation paid to employees during the year.

In this context, total employee compensation refers to the entire remuneration paid to employees for their services, which encompasses salaries, wages, bonuses, and any other forms of payment. By taking 25% of this total compensation, the employer can determine the maximum amount they can deduct for contributions to the retirement plan.

This approach ensures that contributions are proportional to the overall compensation structure within the organization while promoting fairness and compliance with IRS regulations. Thus, option C accurately reflects the method of calculating relevant compensation for the deduction limit.