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Hr block free efile Publication 3991 - Introductory Material Table of Contents Introduction Introduction All of the changes discussed in this publication resulted from the Job Creation and Worker Assistance Act of 2002. Hr block free efile This publication highlights tax law changes that took effect retroactively for 2001 and others that take effect in 2002 and later years. Hr block free efile The chapters are divided into separate sections based on when the changes take effect. Hr block free efile For example, this publication covers the following topics. Hr block free efile Tax benefits for the area of New York City damaged in terrorist attacks on September 11, 2001. Hr block free efile New deduction available for educator expenses. Hr block free efile Limit on the use of the non-accrual experience method of accounting. Hr block free efile Pension changes such as the new tax credit for certain pension plan startup costs, an increased SEP contribution limit, figuring 403(b) catch-up contributions, and a provision for deemed IRAs. Hr block free efile Extension of the welfare-to-work credit and work opportunity credit. Hr block free efile New 5-year carryback rule for net operating losses (NOLs). Hr block free efile See the discussion of each topic for more information. Hr block free efile Certain changes had a major effect on two of the publications we issued for 2001. Hr block free efile We published supplements to those two publications and they have been included in this publication as follows. Hr block free efile Chapter 4 contains the supplement to Publication 463, Travel, Entertainment, Gift, and Car Expenses. Hr block free efile This discusses the increase in the amount of depreciation deduction for certain automobiles. Hr block free efile Chapter 5 contains the supplement to Publication 946, How To Depreciate Property. Hr block free efile This discusses the special depreciation allowance for property acquired after September 10, 2001. Hr block free efile Adjusting your withholding or estimated tax payments for 2002. Hr block free efile   If your tax for 2002 will be more or less than your 2001 tax, you may need to adjust your withholding or estimated tax payments accordingly. Hr block free efile If your tax will decrease, you can get the benefit of lower taxes throughout the year. Hr block free efile If you will owe more tax, you can avoid a penalty when you file your tax return. Hr block free efile   See the following table for forms and publications that will help you adjust your withholding or estimated tax payments. Hr block free efile See chapter 6 for information on ordering forms and publications. Hr block free efile To adjust your. Hr block free efile . Hr block free efile . Hr block free efile . Hr block free efile Get Form. Hr block free efile . Hr block free efile . Hr block free efile And Publication. Hr block free efile . Hr block free efile . Hr block free efile Withholding W–4, Employee's Withholding Allowance Certificate 919, How Do I Adjust My Tax Withholding? Estimated tax payments 1040–ES, Estimated Tax for Individuals 505, Tax Withholding and Estimated Tax Photographs of missing children. Hr block free efile   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Hr block free efile Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Hr block free efile 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. Hr block free efile Comments and suggestions. Hr block free efile   We welcome your comments about this publication. Hr block free efile   You can e-mail us while visiting our web site at www. Hr block free efile irs. Hr block free efile gov. Hr block free efile   You can write to us at the following address: Internal Revenue Service Technical Publications Branch W:CAR:MP:FP:P 1111 Constitution Ave. Hr block free efile NW Washington, DC 20224   We respond to many letters by telephone. Hr block free efile Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Hr block free efile Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Hurricane Sandy in Rhode Island

RI-2012-30, Nov. 15, 2012

BOSTON — Victims of Hurricane Sandy that began on Oct. 26, 2012 in parts of Rhode Island may qualify for tax relief from the Internal Revenue Service.

The President has declared Newport and Washington counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Oct. 26, and on or before Feb. 1, have been postponed to Feb. 1, 2013.  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Oct. 26, and on or before Nov. 26, as long as the deposits are made by Nov. 26, 2012.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area need to call the IRS disaster hotline at 866-562-5227 to request this tax relief.

For a full description of the relief being provided by the IRS to the victims of Hurricane Sandy, visit IRS.gov.

Covered Disaster Area

The counties above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Feb. 1 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Oct. 26 and on or before Feb. 1.

The IRS also gives affected taxpayers until Feb. 1 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Oct. 26 and on or before Feb. 1.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Oct. 26 and on or before Nov. 26 provided the taxpayer makes these deposits by Nov. 26.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Rhode Island/Hurricane Sandy” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-TAX-FORM (800-829-3676). The IRS toll-free number for general tax questions is 800-829-1040.

Related Information

Disaster Assistance and Emergency Relief for Individuals and Businesses

Recent IRS Disaster Relief Announcements

 

Page Last Reviewed or Updated: 05-Nov-2013

The Hr Block Free Efile

Hr block free efile 2. Hr block free efile   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. Hr block free efile 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. Hr block free efile Deferral percentage. Hr block free efile Employee compensation. Hr block free efile Compensation of self-employed individuals. Hr block free efile Choice not to treat deferrals as compensation. Hr block free efile Limit on Elective Deferrals Tax Treatment of Deferrals Distributions (Withdrawals) Additional TaxesEffects on employee. Hr block free efile 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. Hr block free efile S. Hr block free efile 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. Hr block free efile Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. Hr block free efile A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. Hr block free efile SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). Hr block free efile 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). Hr block free efile Eligible employee. Hr block free efile   An eligible employee is an individual who meets all the following requirements. Hr block free efile Has reached age 21. Hr block free efile Has worked for you in at least 3 of the last 5 years. Hr block free efile Has received at least $550 in compensation from you in 2013. Hr block free efile This amount remains the same in 2014. Hr block free efile    You can use less restrictive participation requirements than those listed, but not more restrictive ones. Hr block free efile Excludable employees. Hr block free efile   The following employees can be excluded from coverage under a SEP. Hr block free efile Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Hr block free efile Nonresident alien employees who have received no U. Hr block free efile S. Hr block free efile source wages, salaries, or other personal services compensation from you. Hr block free efile For more information about nonresident aliens, see Publication 519, U. Hr block free efile S. Hr block free efile Tax Guide for Aliens. Hr block free efile Setting Up a SEP There are three basic steps in setting up a SEP. Hr block free efile You must execute a formal written agreement to provide benefits to all eligible employees. Hr block free efile You must give each eligible employee certain information about the SEP. Hr block free efile A SEP-IRA must be set up by or for each eligible employee. Hr block free efile Many financial institutions will help you set up a SEP. Hr block free efile Formal written agreement. Hr block free efile   You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. Hr block free efile You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. Hr block free efile However, see When not to use Form 5305-SEP, below. Hr block free efile   If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. Hr block free efile Keep the original form. Hr block free efile Do not file it with the IRS. Hr block free efile Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. Hr block free efile See the Form 5305-SEP instructions for details. Hr block free efile If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP. Hr block free efile When not to use Form 5305-SEP. Hr block free efile   You cannot use Form 5305-SEP if any of the following apply. Hr block free efile You currently maintain any other qualified retirement plan other than another SEP. Hr block free efile You have any eligible employees for whom IRAs have not been set up. Hr block free efile You use the services of leased employees, who are not your common-law employees (as described in chapter 1). Hr block free efile 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. Hr block free efile An affiliated service group described in section 414(m). Hr block free efile A controlled group of corporations described in section 414(b). Hr block free efile Trades or businesses under common control described in section 414(c). Hr block free efile You do not pay the cost of the SEP contributions. Hr block free efile Information you must give to employees. Hr block free efile   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. Hr block free efile An IRS model SEP is not considered adopted until you give each employee this information. Hr block free efile Setting up the employee's SEP-IRA. Hr block free efile   A SEP-IRA must be set up by or for each eligible employee. Hr block free efile SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. Hr block free efile You send SEP contributions to the financial institution where the SEP-IRA is maintained. Hr block free efile Deadline for setting up a SEP. Hr block free efile   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. Hr block free efile Credit for startup costs. Hr block free efile   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. Hr block free efile For more information, see Credit for startup costs under Reminders, earlier. Hr block free efile 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. Hr block free efile If you are self-employed, you can contribute to your own SEP-IRA. Hr block free efile Contributions must be in the form of money (cash, check, or money order). Hr block free efile You cannot contribute property. Hr block free efile However, participants may be able to transfer or roll over certain property from one retirement plan to another. Hr block free efile See Publication 590 for more information about rollovers. Hr block free efile You do not have to make contributions every year. Hr block free efile 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). Hr block free efile 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. Hr block free efile Contributions are deductible within limits, as discussed later, and generally are not taxable to the plan participants. Hr block free efile A SEP-IRA cannot be a Roth IRA. Hr block free efile Employer contributions to a SEP-IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Hr block free efile Unlike regular contributions to a traditional IRA, contributions under a SEP can be made to participants over age 70½. Hr block free efile If you are self-employed, you can also make contributions under the SEP for yourself even if you are over 70½. Hr block free efile Participants age 70½ or over must take required minimum distributions. Hr block free efile Time limit for making contributions. Hr block free efile   To deduct contributions for a year, you must make the contributions by the due date (including extensions) of your tax return for the year. Hr block free efile 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. Hr block free efile Compensation generally does not include your contributions to the SEP. Hr block free efile The SEP plan document will specify how the employer contribution is determined and how it will be allocated to participants. Hr block free efile Example. Hr block free efile Your employee, Mary Plant, earned $21,000 for 2013. Hr block free efile The maximum contribution you can make to her SEP-IRA is $5,250 (25% x $21,000). Hr block free efile Contributions for yourself. Hr block free efile   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. Hr block free efile However, special rules apply when figuring your maximum deductible contribution. Hr block free efile See Deduction Limit for Self-Employed Individuals , later. Hr block free efile Annual compensation limit. Hr block free efile   You cannot consider the part of an employee's compensation over $255,000 when figuring your contribution limit for that employee. Hr block free efile However, $51,000 is the maximum contribution for an eligible employee. Hr block free efile These limits are $260,000 and $52,000, respectively, in 2014. Hr block free efile Example. Hr block free efile Your employee, Susan Green, earned $210,000 for 2013. Hr block free efile Because of the maximum contribution limit for 2013, you can only contribute $51,000 to her SEP-IRA. Hr block free efile More than one plan. Hr block free efile   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. Hr block free efile When you figure this limit, you must add your contributions to all defined contribution plans maintained by you. Hr block free efile 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. Hr block free efile Tax treatment of excess contributions. Hr block free efile   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. Hr block free efile 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). Hr block free efile $51,000. Hr block free efile 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. Hr block free efile For more information on employee tax treatment of excess contributions, see chapter 1 in Publication 590. Hr block free efile Reporting on Form W-2. Hr block free efile   Do not include SEP contributions on your employee's Form W-2 unless contributions were made under a salary reduction arrangement (discussed later). Hr block free efile Deducting Contributions Generally, you can deduct the contributions you make each year to each employee's SEP-IRA. Hr block free efile If you are self-employed, you can deduct the contributions you make each year to your own SEP-IRA. Hr block free efile 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. Hr block free efile Your contributions (including any excess contributions carryover). Hr block free efile 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. Hr block free efile In 2014, the amounts in (2) above are $260,000 and $52,000, respectively. Hr block free efile 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. Hr block free efile 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. Hr block free efile The deduction for the deductible part of your self-employment tax. Hr block free efile The deduction for contributions to your own SEP-IRA. Hr block free efile The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. Hr block free efile 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. Hr block free efile 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. Hr block free efile Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Hr block free efile 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. Hr block free efile However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year. Hr block free efile 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. Hr block free efile Excise tax. Hr block free efile   If you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. Hr block free efile For information about the excise tax, see Excise Tax for Nondeductible (Excess) Contributions under Employer Deduction in chapter 4. Hr block free efile When To Deduct Contributions When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. Hr block free efile 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. Hr block free efile 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. Hr block free efile Example. Hr block free efile You are a fiscal year taxpayer whose tax year ends June 30. Hr block free efile You maintain a SEP on a calendar year basis. Hr block free efile You deduct SEP contributions made for calendar year 2013 on your tax return for your tax year ending June 30, 2014. Hr block free efile Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Hr block free efile 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. Hr block free efile S. Hr block free efile Return of Partnership Income; and corporations deduct them on Form 1120, U. Hr block free efile S. Hr block free efile Corporation Income Tax Return, or Form 1120S, U. Hr block free efile S. Hr block free efile Income Tax Return for an S Corporation. Hr block free efile Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Hr block free efile (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. Hr block free efile , you receive from the partnership. Hr block free efile ) 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. Hr block free efile Salary Reduction Simplified Employee Pensions (SARSEPs) A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. Hr block free efile (See the Caution, next. Hr block free efile ) 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. Hr block free efile 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. Hr block free efile You are not allowed to set up a SARSEP after 1996. Hr block free efile 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. Hr block free efile If you are interested in setting up a retirement plan that includes a salary reduction arrangement, see chapter 3. Hr block free efile 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. Hr block free efile At least 50% of your employees eligible to participate choose to make elective deferrals. Hr block free efile You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. Hr block free efile The elective deferrals of your highly compensated employees meet the SARSEP ADP test. Hr block free efile SARSEP ADP test. Hr block free efile   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. Hr block free efile A highly compensated employee is defined in chapter 1. Hr block free efile Deferral percentage. Hr block free efile   The deferral percentage for an employee for a year is figured as follows. Hr block free efile   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. Hr block free efile Employee compensation. Hr block free efile   For figuring the deferral percentage, compensation is generally the amount you pay to the employee for the year. Hr block free efile Compensation includes the elective deferral and other amounts deferred in certain employee benefit plans. Hr block free efile See Compensation in chapter 1. Hr block free efile 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. Hr block free efile Compensation of self-employed individuals. Hr block free efile   If you are self-employed, compensation is your net earnings from self-employment as defined in chapter 1. Hr block free efile   Compensation does not include tax-free items (or deductions related to them) other than foreign earned income and housing cost amounts. Hr block free efile Choice not to treat deferrals as compensation. Hr block free efile   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. Hr block free efile Limit on Elective Deferrals The most a participant can choose to defer for calendar year 2013 is the lesser of the following amounts. Hr block free efile 25% of the participant's compensation (limited to $255,000 of the participant's compensation). Hr block free efile $17,500. Hr block free efile The $17,500 limit applies to the total elective deferrals the employee makes for the year to a SEP and any of the following. Hr block free efile Cash or deferred arrangement (section 401(k) plan). Hr block free efile Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). Hr block free efile SIMPLE IRA plan. Hr block free efile In 2014, the $255,000 limit increases to $260,000 and the $17,500 limit remains at $17,500. Hr block free efile Catch-up contributions. Hr block free efile   A SARSEP can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Hr block free efile The catch-up contribution limit for 2013 is $5,500 and remains at $5,500 for 2014. Hr block free efile 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). Hr block free efile However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Hr block free efile The catch-up contribution limit. Hr block free efile The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Hr block free efile   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). Hr block free efile Overall limit on SEP contributions. Hr block free efile   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). Hr block free efile The same rule applies to contributions you make to your own SEP-IRA. Hr block free efile See Contribution Limits , earlier. Hr block free efile Figuring the elective deferral. Hr block free efile   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. Hr block free efile 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. Hr block free efile However, these deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Hr block free efile Excess deferrals. Hr block free efile   For 2013, excess deferrals are the elective deferrals for the year that are more than the $17,500 limit discussed earlier. Hr block free efile For a participant who is eligible to make catch-up contributions, excess deferrals are the elective deferrals that are more than $23,000. Hr block free efile The treatment of excess deferrals made under a SARSEP is similar to the treatment of excess deferrals made under a qualified plan. Hr block free efile See Treatment of Excess Deferrals under Elective Deferrals (401(k) Plans) in chapter 4. Hr block free efile Excess SEP contributions. Hr block free efile   Excess SEP contributions are elective deferrals of highly compensated employees that are more than the amount permitted under the SARSEP ADP test. Hr block free efile You must notify your highly compensated employees within 2½ months after the end of the plan year of their excess SEP contributions. Hr block free efile If you do not notify them within this time period, you must pay a 10% tax on the excess. Hr block free efile For an explanation of the notification requirements, see Rev. Hr block free efile Proc. Hr block free efile 91-44, 1991-2 C. Hr block free efile B. Hr block free efile 733. Hr block free efile If you adopted a SARSEP using Form 5305A-SEP, the notification requirements are explained in the instructions for that form. Hr block free efile Reporting on Form W-2. Hr block free efile   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Hr block free efile You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Hr block free efile You must also include them in box 12. Hr block free efile Mark the “Retirement plan” checkbox in box 13. Hr block free efile For more information, see the Form W-2 instructions. Hr block free efile Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA. Hr block free efile 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. Hr block free efile Distributions are subject to IRA rules. Hr block free efile 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. Hr block free efile For more information about IRA rules, including the tax treatment of distributions, rollovers, required distributions, and income tax withholding, see Publication 590. Hr block free efile 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. Hr block free efile Making excess contributions. Hr block free efile Making early withdrawals. Hr block free efile Not making required withdrawals. Hr block free efile For information about these taxes, see chapter 1 in Publication 590. Hr block free efile Also, a SEP-IRA may be disqualified, or an excise tax may apply, if the account is involved in a prohibited transaction, discussed next. Hr block free efile Prohibited transaction. Hr block free efile   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. Hr block free efile In that case, the SEP-IRA will no longer qualify as an IRA. Hr block free efile For a list of prohibited transactions, see Prohibited Transactions in chapter 4. Hr block free efile Effects on employee. Hr block free efile   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. Hr block free efile 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. Hr block free efile Also, the employee may have to pay the additional tax for making early withdrawals. Hr block free efile 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. Hr block free efile See Setting Up a SEP , earlier. Hr block free efile Also, you must give your eligible employees a statement each year showing any contributions to their SEP-IRAs. Hr block free efile You must also give them notice of any excess contributions. Hr block free efile 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). Hr block free efile 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. Hr block free efile For more information, see the instructions for either Form 5305-SEP or Form 5305A-SEP. Hr block free efile Prev  Up  Next   Home   More Online Publications