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Filelate com Publication 509 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionOrdering forms and publications. Filelate com Tax questions. Filelate com Background Information for Using the Tax CalendarsElectronic deposit requirement. Filelate com Legal holidays. Filelate com Statewide legal holidays. Filelate com Future Developments For the latest information about developments related to Publication 509, such as legislation enacted after it was published, go to www. Filelate com irs. Filelate com gov/pub509. Filelate com What's New Publication 1518 discontinued after 2013. Filelate com Publication 1518, IRS Tax Calendar for Small Businesses and Self-Employed, is discontinued after 2013. Filelate com An IRS Tax Calendar and most of the information previously contained in Publication 1518 can be found at www. Filelate com irs. Filelate com gov/taxcalendar. Filelate com Reminders Photographs of missing children. Filelate com The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Filelate com Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Filelate com You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Filelate com Introduction A tax calendar is a 12-month calendar divided into quarters. Filelate com The calendar gives specific due dates for: Filing tax forms, Paying taxes, and Taking other actions required by federal tax law. Filelate com What does this publication contain? This publication contains the following. Filelate com A section on how to use the tax calendars. Filelate com Three tax calendars: General Tax Calendar, Employer's Tax Calendar, and Excise Tax Calendar. Filelate com A table showing the semiweekly deposit due dates for payroll taxes for 2014. Filelate com Most of the due dates discussed in this publication are also included in the IRS Tax Calendar available at www. Filelate com irs. Filelate com gov/taxcalendar. Filelate com Who should use this publication? Primarily, employers need to use this publication. Filelate com However, the General Tax Calendar has important due dates for all businesses and individuals. Filelate com Anyone who must pay excise taxes may need the Excise Tax Calendar . Filelate com What are the advantages of using a tax calendar? The following are advantages of using a calendar. Filelate com You do not have to figure the due dates yourself. Filelate com You can file or pay timely and avoid penalties. Filelate com You do not have to adjust the due dates for Saturdays, Sundays, and legal holidays. Filelate com You do not have to adjust the due dates for special banking rules if you use the Employer's Tax Calendar or Excise Tax Calendar . Filelate com Which calendar(s) should I use? To decide which calendar(s) to use, first look at the General Tax Calendar and highlight the dates that apply to you. Filelate com If you are an employer, also use the Employer's Tax Calendar . Filelate com If you must pay excise taxes, use the Excise Tax Calendar . Filelate com Depending on your situation, you may need to use more than one calendar. Filelate com Table 1. Filelate com Useful Publications IF you are. Filelate com . Filelate com . Filelate com THEN you may need. Filelate com . Filelate com . Filelate com An employer • Publication 15 (Circular E), Employer's Tax Guide. Filelate com • Publication 15-A, Employer's Supplemental Tax Guide. Filelate com • Publication 15-B, Employer's Tax Guide to Fringe Benefits. Filelate com • Publication 926, Household Employer's Tax Guide. Filelate com A farmer • Publication 51 (Circular A), Agricultural Employer's Tax Guide. Filelate com • Publication 225, Farmer's Tax Guide. Filelate com An individual • Publication 505, Tax Withholding and Estimated Tax. Filelate com Required to pay excise taxes • Publication 510, Excise Taxes. Filelate com What is not in these calendars? The calendars do not cover the employment or excise tax deposit rules. Filelate com You can find the deposit rules for employment taxes in Publication 15 (Circular E), Employer's Tax Guide. Filelate com The deposit rules for excise taxes are in Publication 510, Excise Taxes, and in the Instructions for Form 720, Quarterly Federal Excise Tax Return. Filelate com In addition, the calendars do not cover filing forms and other requirements for: Estate taxes, Gift taxes, Trusts, Exempt organizations, Certain types of corporations, or Foreign partnerships. Filelate com What other publications and tax forms will I need? Table 1 lists other publications you may need to order. Filelate com Each calendar lists the forms you may need. Filelate com See How To Get Tax Help near the end of this publication for information about getting publications and forms. Filelate com Comments and suggestions. Filelate com We welcome your comments about this publication and your suggestions for future editions. Filelate com You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Filelate com NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. Filelate com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Filelate com You can send us comments from www. Filelate com irs. Filelate com gov/formspubs. Filelate com Click on More Information and then click on Comment on Tax Forms and Publications. Filelate com Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our forms and publications. Filelate com Ordering forms and publications. Filelate com Visit www. Filelate com irs. Filelate com gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Filelate com Internal Revenue Service 1201 N. Filelate com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Filelate com If you have a tax question, check the information available on IRS. Filelate com gov or call 1-800-829-1040. Filelate com We cannot answer tax questions sent to either of the above addresses. Filelate com Background Information for Using the Tax Calendars The following brief explanations may be helpful to you in using the tax calendars. Filelate com IRS e-services make taxes easier. Filelate com Now more than ever before, businesses can enjoy the benefits of filing and paying their federal taxes electronically. Filelate com Whether you rely on a tax professional or handle your own taxes, the IRS offers you convenient programs to make taxes easier. Filelate com You can e-file your Form 1040; certain business tax returns such as Forms 1120, 1120S, and 1065; certain employment tax returns such as Forms 940 and 941; certain excise tax returns such as Forms 720, 2290, and 8849; and Form 1099 and other information returns. Filelate com Visit www. Filelate com irs. Filelate com gov/efile for more information. Filelate com You can pay taxes online or by phone using the Electronic Federal Tax Payments System (EFTPS). Filelate com For detailed information about using this free service, see Electronic deposit requirement below. Filelate com Use these electronic options to make filing and paying taxes easier. Filelate com For more information on electronic payments, visit the IRS website at www. Filelate com irs. Filelate com gov/e-pay. Filelate com Tax deposits. Filelate com Some taxes can be paid with the return on which they are reported. Filelate com However, in many cases, you have to deposit the tax before the due date for filing the return. Filelate com Tax deposits are figured for periods of time that are shorter than the time period covered by the return. Filelate com See Publication 15 (Circular E) for the employment tax deposit rules. Filelate com For the excise tax deposit rules, see Publication 510 or the Instructions for Form 720. Filelate com Electronic deposit requirement. Filelate com You must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Filelate com Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). Filelate com EFTPS is a free service provided by the Department of Treasury. Filelate com If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Filelate com To get more information or to enroll in EFTPS, call 1-800-555-4477 (business), 1-800-316-6541 (individual), or 1-800-733-4829 (TDD/TTY). Filelate com You can also visit the EFTPS website at www. Filelate com eftps. Filelate com gov. Filelate com Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. Filelate com If you fail to timely, properly, and in full make your federal tax deposit, you may be subject to a failure-to-deposit penalty. Filelate com For an EFTPS deposit to be on time, you must initiate the deposit by 8 p. Filelate com m. Filelate com Eastern time the day before the date the deposit is due. Filelate com Saturday, Sunday, or legal holiday. Filelate com Generally, if a due date for performing any act for tax purposes falls on a Saturday, Sunday, or legal holiday, the act is considered to be performed timely if it is performed no later than the next day that is not a Saturday, Sunday, or legal holiday. Filelate com The term legal holiday means any legal holiday in the District of Columbia. Filelate com The calendars provided in this publication make the adjustment for Saturdays, Sundays, and legal holidays. Filelate com But you must make any adjustments for statewide legal holidays, as discussed next. Filelate com An exception to this rule for certain excise taxes is noted later under the Excise Tax Calendar. Filelate com Legal holidays. Filelate com Legal holidays for 2014 are listed below. Filelate com January 1— New Year's Day January 20— Birthday of Martin Luther King, Jr. Filelate com / Inauguration Day February 17— Washington's Birthday April 16— District of Columbia Emancipation Day May 26— Memorial Day July 4— Independence Day September 1— Labor Day October 13— Columbus Day November 11— Veterans Day November 27— Thanksgiving Day December 25— Christmas Day Statewide legal holidays. Filelate com A statewide legal holiday delays a due date for filing a return only if the IRS office where you are required to file is located in that state. Filelate com A statewide legal holiday does not delay a due date for making a federal tax deposit. Filelate com Extended due date for Forms 1098, 1099, and W-2 if filed electronically. Filelate com If you file Forms 1098, 1099, or W-2 electronically, your due date for filing them with the IRS or the Social Security Administration (SSA) will be extended to March 31. Filelate com For 2014, the due date for giving the recipient these forms is January 31. Filelate com For information about filing Forms 1098, 1099, or W-2G electronically, see Publication 1220, Specifications for Filing Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically. Filelate com For information about filing Form W-2 electronically with the SSA, visit www. Filelate com ssa. Filelate com gov/employer or call 1-800-772-6270. Filelate com Penalties. Filelate com Whenever possible, you should take action before the listed due date. Filelate com If you are late, you may have to pay a penalty as well as interest on any overdue taxes. Filelate com Be sure to follow all the tax laws that apply to you. Filelate com In addition to civil penalties, criminal penalties may be imposed for intentionally not paying taxes, for intentionally filing a false return, or for not filing a required return. Filelate com Use of private delivery services. Filelate com You can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for tax returns and payments. Filelate com These private delivery services include only the following. Filelate com DHL Express (DHL): DHL Same Day Service. Filelate com Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Priority, and FedEx International First. Filelate com United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Filelate com M. Filelate com , UPS Worldwide Express Plus, and UPS Worldwide Express. Filelate com For the IRS mailing address to use if you are using a private delivery service, go to IRS. Filelate com gov and enter “private delivery service” in the search box. Filelate com The private delivery service can tell you how to get written proof of the mailing date. Filelate com The U. Filelate com S. Filelate com Postal Service advises that private delivery services cannot deliver items to P. Filelate com O. Filelate com boxes. Filelate com You must use the U. Filelate com S. Filelate com Postal Service to mail any item to an IRS P. Filelate com O. Filelate com box address. Filelate com Prev Up Next Home More Online Publications
Other International Individual Topics
Taxpayer Identification Numbers (TIN)
A Taxpayer Identification Number (TIN) is an identification number used by the Internal Revenue Service (IRS) in the administration of tax laws.
Tax treaties may allow residents of foreign countries to be taxed at a reduced rate, or to be exempt from U.S. income taxes on certain items of income they receive from sources within the United States.
U.S. Citizens and Resident Aliens Abroad
This section covers tax topics for U.S. citizens or resident aliens living overseas.
Taxation of Nonresident Aliens
The U.S. source income of nonresident aliens is subject to U.S. taxation.
Contact My Local Office Internationally
If you are a taxpayer who resides outside of the United States, the IRS has staff in four U.S. embassies and consulates. These offices have tax forms and publications, can help you with account problems, and answer your questions about notices and bills.
Federal Unemployment Tax
Information about the Federal Unemployment Tax Act (FUTA), with state unemployment systems, which provides for payments of unemployment compensation to workers who have lost their jobs.
Foreign Earned Income Exclusion
If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction.
Foreign Students and Scholars
Aliens temporarily present in the United States as students, trainees, teachers, researchers, exchange visitors, and cultural exchange visitors are subject to special rules with respect to the taxation of their income.
Withholding Exemptions - Personal Exemptions - Form W-4
This page discusses the amount of wages subject to graduated withholding which may be reduced by the personal exemption amount.
Social Security Tax / Medicare Tax and Self-Employment
This section contatins information and links regarding Social Security Tax and Medicare Taxes.
Foreign Currency and Currency Exchange Rates
This section will give you useful information on foreign currency and where to go to research currency exchange rates.
Taxation of U.S. Resident Aliens
A resident alien's income is generally subject to tax in the same manner as a U.S. citizen.
Page Last Reviewed or Updated: 25-Mar-2014
The Filelate Com
Filelate com 2. Filelate com Simplified Employee Pensions (SEPs) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Setting Up a SEPWhen not to use Form 5305-SEP. Filelate com How Much Can I Contribute?Contribution Limits Deducting ContributionsDeduction Limit for Contributions for Participants Deduction Limit for Self-Employed Individuals Carryover of Excess SEP Contributions When To Deduct Contributions Where To Deduct Contributions Salary Reduction Simplified Employee Pensions (SARSEPs)SARSEP ADP test. Filelate com Deferral percentage. Filelate com Employee compensation. Filelate com Compensation of self-employed individuals. Filelate com Choice not to treat deferrals as compensation. Filelate com Limit on Elective Deferrals Tax Treatment of Deferrals Distributions (Withdrawals) Additional TaxesEffects on employee. Filelate com Reporting and Disclosure Requirements Topics - This chapter discusses: Setting up a SEP How much can I contribute Deducting contributions Salary reduction simplified employee pensions (SARSEPs) Distributions (withdrawals) Additional taxes Reporting and disclosure requirements Useful Items - You may want to see: Publication 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4285 SEP Checklist 4286 SARSEP Checklist 4333 SEP Retirement Plans for Small Businesses 4336 SARSEP for Small Businesses 4407 SARSEP—Key Issues and Assistance Forms (and Instructions) W-2 Wage and Tax Statement 1040 U. Filelate com S. Filelate com Individual Income Tax Return 5305-SEP Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 5305A-SEP Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A SEP is a written plan that allows you to make contributions toward your own retirement and your employees' retirement without getting involved in a more complex qualified plan. Filelate com Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. Filelate com A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. Filelate com SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). Filelate com A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but does not need to be set up for excludable employees (defined later). Filelate com Eligible employee. Filelate com An eligible employee is an individual who meets all the following requirements. Filelate com Has reached age 21. Filelate com Has worked for you in at least 3 of the last 5 years. Filelate com Has received at least $550 in compensation from you in 2013. Filelate com This amount remains the same in 2014. Filelate com You can use less restrictive participation requirements than those listed, but not more restrictive ones. Filelate com Excludable employees. Filelate com The following employees can be excluded from coverage under a SEP. Filelate com Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Filelate com Nonresident alien employees who have received no U. Filelate com S. Filelate com source wages, salaries, or other personal services compensation from you. Filelate com For more information about nonresident aliens, see Publication 519, U. Filelate com S. Filelate com Tax Guide for Aliens. Filelate com Setting Up a SEP There are three basic steps in setting up a SEP. Filelate com You must execute a formal written agreement to provide benefits to all eligible employees. Filelate com You must give each eligible employee certain information about the SEP. Filelate com A SEP-IRA must be set up by or for each eligible employee. Filelate com Many financial institutions will help you set up a SEP. Filelate com Formal written agreement. Filelate com You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. Filelate com You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. Filelate com However, see When not to use Form 5305-SEP, below. Filelate com If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. Filelate com Keep the original form. Filelate com Do not file it with the IRS. Filelate com Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. Filelate com See the Form 5305-SEP instructions for details. Filelate com If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP. Filelate com When not to use Form 5305-SEP. Filelate com You cannot use Form 5305-SEP if any of the following apply. Filelate com You currently maintain any other qualified retirement plan other than another SEP. Filelate com You have any eligible employees for whom IRAs have not been set up. Filelate com You use the services of leased employees, who are not your common-law employees (as described in chapter 1). Filelate com You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP. Filelate com An affiliated service group described in section 414(m). Filelate com A controlled group of corporations described in section 414(b). Filelate com Trades or businesses under common control described in section 414(c). Filelate com You do not pay the cost of the SEP contributions. Filelate com Information you must give to employees. Filelate com You must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. Filelate com An IRS model SEP is not considered adopted until you give each employee this information. Filelate com Setting up the employee's SEP-IRA. Filelate com A SEP-IRA must be set up by or for each eligible employee. Filelate com SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. Filelate com You send SEP contributions to the financial institution where the SEP-IRA is maintained. Filelate com Deadline for setting up a SEP. Filelate com You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year. Filelate com Credit for startup costs. Filelate com You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2013. Filelate com For more information, see Credit for startup costs under Reminders, earlier. Filelate com How Much Can I Contribute? The SEP rules permit you to contribute a limited amount of money each year to each employee's SEP-IRA. Filelate com If you are self-employed, you can contribute to your own SEP-IRA. Filelate com Contributions must be in the form of money (cash, check, or money order). Filelate com You cannot contribute property. Filelate com However, participants may be able to transfer or roll over certain property from one retirement plan to another. Filelate com See Publication 590 for more information about rollovers. Filelate com You do not have to make contributions every year. Filelate com But if you make contributions, they must be based on a written allocation formula and must not discriminate in favor of highly compensated employees (defined in chapter 1). Filelate com When you contribute, you must contribute to the SEP-IRAs of all participants who actually performed personal services during the year for which the contributions are made, including employees who die or terminate employment before the contributions are made. Filelate com Contributions are deductible within limits, as discussed later, and generally are not taxable to the plan participants. Filelate com A SEP-IRA cannot be a Roth IRA. Filelate com Employer contributions to a SEP-IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Filelate com Unlike regular contributions to a traditional IRA, contributions under a SEP can be made to participants over age 70½. Filelate com If you are self-employed, you can also make contributions under the SEP for yourself even if you are over 70½. Filelate com Participants age 70½ or over must take required minimum distributions. Filelate com Time limit for making contributions. Filelate com To deduct contributions for a year, you must make the contributions by the due date (including extensions) of your tax return for the year. Filelate com Contribution Limits Contributions you make for 2013 to a common-law employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000. Filelate com Compensation generally does not include your contributions to the SEP. Filelate com The SEP plan document will specify how the employer contribution is determined and how it will be allocated to participants. Filelate com Example. Filelate com Your employee, Mary Plant, earned $21,000 for 2013. Filelate com The maximum contribution you can make to her SEP-IRA is $5,250 (25% x $21,000). Filelate com Contributions for yourself. Filelate com The annual limits on your contributions to a common-law employee's SEP-IRA also apply to contributions you make to your own SEP-IRA. Filelate com However, special rules apply when figuring your maximum deductible contribution. Filelate com See Deduction Limit for Self-Employed Individuals , later. Filelate com Annual compensation limit. Filelate com You cannot consider the part of an employee's compensation over $255,000 when figuring your contribution limit for that employee. Filelate com However, $51,000 is the maximum contribution for an eligible employee. Filelate com These limits are $260,000 and $52,000, respectively, in 2014. Filelate com Example. Filelate com Your employee, Susan Green, earned $210,000 for 2013. Filelate com Because of the maximum contribution limit for 2013, you can only contribute $51,000 to her SEP-IRA. Filelate com More than one plan. Filelate com If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $51,000 or 100% of the participant's compensation. Filelate com When you figure this limit, you must add your contributions to all defined contribution plans maintained by you. Filelate com Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans you maintain. Filelate com Tax treatment of excess contributions. Filelate com Excess contributions are your contributions to an employee's SEP-IRA (or to your own SEP-IRA) for 2013 that exceed the lesser of the following amounts. Filelate com 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). Filelate com $51,000. Filelate com Excess contributions are included in the employee's income for the year and are treated as contributions by the employee to his or her SEP-IRA. Filelate com For more information on employee tax treatment of excess contributions, see chapter 1 in Publication 590. Filelate com Reporting on Form W-2. Filelate com Do not include SEP contributions on your employee's Form W-2 unless contributions were made under a salary reduction arrangement (discussed later). Filelate com Deducting Contributions Generally, you can deduct the contributions you make each year to each employee's SEP-IRA. Filelate com If you are self-employed, you can deduct the contributions you make each year to your own SEP-IRA. Filelate com Deduction Limit for Contributions for Participants The most you can deduct for your contributions to you or your employee's SEP-IRA is the lesser of the following amounts. Filelate com Your contributions (including any excess contributions carryover). Filelate com 25% of the compensation (limited to $255,000 per participant) paid to the participants during 2013 from the business that has the plan, not to exceed $51,000 per participant. Filelate com In 2014, the amounts in (2) above are $260,000 and $52,000, respectively. Filelate com Deduction Limit for Self-Employed Individuals If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. Filelate com When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions. Filelate com The deduction for the deductible part of your self-employment tax. Filelate com The deduction for contributions to your own SEP-IRA. Filelate com The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. Filelate com For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. Filelate com To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 5. Filelate com Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Filelate com Carryover of Excess SEP Contributions If you made SEP contributions that are more than the deduction limit (nondeductible contributions), you can carry over and deduct the difference in later years. Filelate com However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year. Filelate com If you also contributed to a defined benefit plan or defined contribution plan, see Carryover of Excess Contributions under Employer Deduction in chapter 4 for the carryover limit. Filelate com Excise tax. Filelate com If you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. Filelate com For information about the excise tax, see Excise Tax for Nondeductible (Excess) Contributions under Employer Deduction in chapter 4. Filelate com When To Deduct Contributions When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. Filelate com If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. Filelate com If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year. Filelate com Example. Filelate com You are a fiscal year taxpayer whose tax year ends June 30. Filelate com You maintain a SEP on a calendar year basis. Filelate com You deduct SEP contributions made for calendar year 2013 on your tax return for your tax year ending June 30, 2014. Filelate com Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Filelate com For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming; partnerships deduct them on Form 1065, U. Filelate com S. Filelate com Return of Partnership Income; and corporations deduct them on Form 1120, U. Filelate com S. Filelate com Corporation Income Tax Return, or Form 1120S, U. Filelate com S. Filelate com Income Tax Return for an S Corporation. Filelate com Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Filelate com (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Filelate com , you receive from the partnership. Filelate com ) Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees. Filelate com Salary Reduction Simplified Employee Pensions (SARSEPs) A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. Filelate com (See the Caution, next. Filelate com ) Under a SARSEP, your employees can choose to have you contribute part of their pay to their SEP-IRAs rather than receive it in cash. Filelate com This contribution is called an “elective deferral” because employees choose (elect) to set aside the money, and they defer the tax on the money until it is distributed to them. Filelate com You are not allowed to set up a SARSEP after 1996. Filelate com However, participants (including employees hired after 1996) in a SARSEP set up before 1997 can continue to have you contribute part of their pay to the plan. Filelate com If you are interested in setting up a retirement plan that includes a salary reduction arrangement, see chapter 3. Filelate com Who can have a SARSEP? A SARSEP set up before 1997 is available to you and your eligible employees only if all the following requirements are met. Filelate com At least 50% of your employees eligible to participate choose to make elective deferrals. Filelate com You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. Filelate com The elective deferrals of your highly compensated employees meet the SARSEP ADP test. Filelate com SARSEP ADP test. Filelate com Under the SARSEP ADP test, the amount deferred each year by each eligible highly compensated employee as a percentage of pay (the deferral percentage) cannot be more than 125% of the average deferral percentage (ADP) of all non-highly compensated employees eligible to participate. Filelate com A highly compensated employee is defined in chapter 1. Filelate com Deferral percentage. Filelate com The deferral percentage for an employee for a year is figured as follows. Filelate com The elective employer contributions (excluding certain catch-up contributions) paid to the SEP for the employee for the year The employee's compensation (limited to $255,000 in 2013) The instructions for Form 5305A-SEP have a worksheet you can use to determine whether the elective deferrals of your highly compensated employees meet the SARSEP ADP test. Filelate com Employee compensation. Filelate com For figuring the deferral percentage, compensation is generally the amount you pay to the employee for the year. Filelate com Compensation includes the elective deferral and other amounts deferred in certain employee benefit plans. Filelate com See Compensation in chapter 1. Filelate com Elective deferrals under the SARSEP are included in figuring your employees' deferral percentage even though they are not included in the income of your employees for income tax purposes. Filelate com Compensation of self-employed individuals. Filelate com If you are self-employed, compensation is your net earnings from self-employment as defined in chapter 1. Filelate com Compensation does not include tax-free items (or deductions related to them) other than foreign earned income and housing cost amounts. Filelate com Choice not to treat deferrals as compensation. Filelate com You can choose not to treat elective deferrals (and other amounts deferred in certain employee benefit plans) for a year as compensation under your SARSEP. Filelate com Limit on Elective Deferrals The most a participant can choose to defer for calendar year 2013 is the lesser of the following amounts. Filelate com 25% of the participant's compensation (limited to $255,000 of the participant's compensation). Filelate com $17,500. Filelate com The $17,500 limit applies to the total elective deferrals the employee makes for the year to a SEP and any of the following. Filelate com Cash or deferred arrangement (section 401(k) plan). Filelate com Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). Filelate com SIMPLE IRA plan. Filelate com In 2014, the $255,000 limit increases to $260,000 and the $17,500 limit remains at $17,500. Filelate com Catch-up contributions. Filelate com A SARSEP can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Filelate com The catch-up contribution limit for 2013 is $5,500 and remains at $5,500 for 2014. Filelate com Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the elective deferral limit (the lesser of 25% of compensation or $17,500), the SARSEP ADP test limit discussed earlier, or the plan limit (if any). Filelate com However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Filelate com The catch-up contribution limit. Filelate com The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Filelate com Catch-up contributions are not subject to the elective deferral limit (the lesser of 25% of compensation or $17,500 in 2013 and in 2014). Filelate com Overall limit on SEP contributions. Filelate com If you also make nonelective contributions to a SEP-IRA, the total of the nonelective and elective contributions to that SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). Filelate com The same rule applies to contributions you make to your own SEP-IRA. Filelate com See Contribution Limits , earlier. Filelate com Figuring the elective deferral. Filelate com For figuring the 25% limit on elective deferrals, compensation does not include SEP contributions, including elective deferrals or other amounts deferred in certain employee benefit plans. Filelate com Tax Treatment of Deferrals Elective deferrals that are not more than the limits discussed earlier under Limit on Elective Deferrals are excluded from your employees' wages subject to federal income tax in the year of deferral. Filelate com However, these deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Filelate com Excess deferrals. Filelate com For 2013, excess deferrals are the elective deferrals for the year that are more than the $17,500 limit discussed earlier. Filelate com For a participant who is eligible to make catch-up contributions, excess deferrals are the elective deferrals that are more than $23,000. Filelate com The treatment of excess deferrals made under a SARSEP is similar to the treatment of excess deferrals made under a qualified plan. Filelate com See Treatment of Excess Deferrals under Elective Deferrals (401(k) Plans) in chapter 4. Filelate com Excess SEP contributions. Filelate com Excess SEP contributions are elective deferrals of highly compensated employees that are more than the amount permitted under the SARSEP ADP test. Filelate com You must notify your highly compensated employees within 2½ months after the end of the plan year of their excess SEP contributions. Filelate com If you do not notify them within this time period, you must pay a 10% tax on the excess. Filelate com For an explanation of the notification requirements, see Rev. Filelate com Proc. Filelate com 91-44, 1991-2 C. Filelate com B. Filelate com 733. Filelate com If you adopted a SARSEP using Form 5305A-SEP, the notification requirements are explained in the instructions for that form. Filelate com Reporting on Form W-2. Filelate com Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Filelate com You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Filelate com You must also include them in box 12. Filelate com Mark the “Retirement plan” checkbox in box 13. Filelate com For more information, see the Form W-2 instructions. Filelate com Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA. Filelate com Also, you cannot make your contributions on the condition that any part of them must be kept in the account after you have made your contributions to the employee's accounts. Filelate com Distributions are subject to IRA rules. Filelate com Generally, you or your employee must begin to receive distributions from a SEP-IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Filelate com For more information about IRA rules, including the tax treatment of distributions, rollovers, required distributions, and income tax withholding, see Publication 590. Filelate com Additional Taxes The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for all the following actions. Filelate com Making excess contributions. Filelate com Making early withdrawals. Filelate com Not making required withdrawals. Filelate com For information about these taxes, see chapter 1 in Publication 590. Filelate com Also, a SEP-IRA may be disqualified, or an excise tax may apply, if the account is involved in a prohibited transaction, discussed next. Filelate com Prohibited transaction. Filelate com If an employee improperly uses his or her SEP-IRA, such as by borrowing money from it, the employee has engaged in a prohibited transaction. Filelate com In that case, the SEP-IRA will no longer qualify as an IRA. Filelate com For a list of prohibited transactions, see Prohibited Transactions in chapter 4. Filelate com Effects on employee. Filelate com If a SEP-IRA is disqualified because of a prohibited transaction, the assets in the account will be treated as having been distributed to the employee on the first day of the year in which the transaction occurred. Filelate com The employee must include in income the fair market value of the assets (on the first day of the year) that is more than any cost basis in the account. Filelate com Also, the employee may have to pay the additional tax for making early withdrawals. Filelate com Reporting and Disclosure Requirements If you set up a SEP using Form 5305-SEP, you must give your eligible employees certain information about the SEP when you set it up. Filelate com See Setting Up a SEP , earlier. Filelate com Also, you must give your eligible employees a statement each year showing any contributions to their SEP-IRAs. Filelate com You must also give them notice of any excess contributions. Filelate com For details about other information you must give them, see the instructions for Form 5305-SEP or Form 5305A-SEP (for a salary reduction SEP). Filelate com Even if you did not use Form 5305-SEP or Form 5305A-SEP to set up your SEP, you must give your employees information similar to that described above. Filelate com For more information, see the instructions for either Form 5305-SEP or Form 5305A-SEP. Filelate com Prev Up Next Home More Online Publications