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Filing 1040nr Ez

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Filing 1040nr Ez

Filing 1040nr ez Index A Accident benefits, Accident and Health Benefits Achievement awards, Achievement Awards Additional Medicare Tax, Reminders, Additional Medicare Tax withholding. Filing 1040nr ez Adoption assistance, Adoption Assistance Annual lease value, Annual Lease Value Assistance (see Tax help) Athletic facilities, Athletic Facilities Automobile (see Vehicles) Awards, achievement, Achievement Awards B Bicycle commuting reimbursement, qualified, Qualified bicycle commuting reimbursement. Filing 1040nr ez C Cafeteria plans, Cafeteria Plans Cents-per-mile rule, What's New, Cents-Per-Mile Rule COBRA premiums, COBRA premiums. Filing 1040nr ez Comments on publication, Comments and suggestions. Filing 1040nr ez Commuter highway vehicle, Commuter highway vehicle. Filing 1040nr ez Commuting rule, Commuting Rule Copying machine use, De Minimis (Minimal) Benefits D Daily lease value, Daily Lease Value De minimis (minimal) benefits In general, De Minimis (Minimal) Benefits Meals, De Minimis Meals Transportation, De Minimis Transportation Benefits Demonstrator cars, Demonstrator cars. Filing 1040nr ez Dependent care assistance, Dependent Care Assistance Deposit rules, 4. Filing 1040nr ez Rules for Withholding, Depositing, and Reporting Discounts for employees, Employee Discounts E Educational assistance, Educational Assistance Employee benefit programs Accident and health benefits, Accident and Health Benefits Cafeteria plans, Cafeteria Plans Dependent care assistance, Dependent Care Assistance Educational assistance, Educational Assistance Group-term life insurance, Group-Term Life Insurance Coverage Employee discounts, Employee Discounts Employee stock options, Employee Stock Options Employer-operated eating facility, Employer-operated eating facility for employees. Filing 1040nr ez Employer-provided cell phones, Employer-Provided Cell Phones Exclusion rules, 2. Filing 1040nr ez Fringe Benefit Exclusion Rules F Fair market value, Fair market value. Filing 1040nr ez Fringe benefit overview, 1. Filing 1040nr ez Fringe Benefit Overview Fringe benefits Special accounting rule, Special accounting rule. Filing 1040nr ez Valuation rules, 3. Filing 1040nr ez Fringe Benefit Valuation Rules G General valuation rule, General Valuation Rule Group-term life insurance, Group-Term Life Insurance Coverage H Health benefits, Accident and Health Benefits Health Savings Accounts, Health Savings Accounts Holiday gifts, De Minimis (Minimal) Benefits I Insurance Accident and health, Accident and Health Benefits Group-term life, Group-Term Life Insurance Coverage Long-term care, Exception for certain long-term care benefits. Filing 1040nr ez L Lease value rule, Lease Value Rule Length of service awards, Achievement Awards Life insurance Group-term, Group-Term Life Insurance Coverage Spouse or dependent, De Minimis (Minimal) Benefits Lodging, Lodging on Your Business Premises Long-term care insurance, Exception for certain long-term care benefits. Filing 1040nr ez M Meals De minimis, De Minimis Meals On your business premises, Meals on Your Business Premises Medical reimbursement plans, Accident and Health Benefits Minimal benefits, De Minimis (Minimal) Benefits Moving expense reimbursements, Moving Expense Reimbursements N No-additional-cost services, No-Additional-Cost Services Nonpersonal use vehicles, qualified, Qualified nonpersonal use vehicles. Filing 1040nr ez O Options on stock, Employee Stock Options Outplacement services, Outplacement services. Filing 1040nr ez P Parking, qualified, Qualified parking. Filing 1040nr ez Parties, De Minimis (Minimal) Benefits Performance of services, Performance of services. Filing 1040nr ez Pickup trucks, Pickup trucks. Filing 1040nr ez Picnics, De Minimis (Minimal) Benefits Prorated annual lease value, Prorated Annual Lease Value Provider defined, Provider of benefit. Filing 1040nr ez Publications (see Tax help) Q Qualified transportation benefits, Qualified Transportation Benefits R Recipient defined, Recipient of benefit. Filing 1040nr ez Reimbursements, moving expense, Moving Expense Reimbursements Reporting rules, 4. Filing 1040nr ez Rules for Withholding, Depositing, and Reporting Retirement planning services, Retirement Planning Services S Safety achievement awards, Achievement Awards Self insurance (medical reimbursement plans), Accident and Health Benefits Services, no-additional-cost, No-Additional-Cost Services Simple Cafeteria Plans, Simple Cafeteria Plans Special accounting rule, Special accounting rule. Filing 1040nr ez Stock options, employee, Employee Stock Options Suggestions for publication, Comments and suggestions. Filing 1040nr ez T Tax help, How To Get Tax Help Taxable benefits, Are Fringe Benefits Taxable? Tickets for theater or sporting events, De Minimis (Minimal) Benefits Transit pass, Transit pass. Filing 1040nr ez Transportation benefits De minimis, De Minimis Transportation Benefits Qualified, Qualified Transportation Benefits TTY/TDD information, How To Get Tax Help Tuition reduction, Tuition Reduction U Unsafe conditions commuting rule, Unsafe Conditions Commuting Rule V Valuation rules, 3. Filing 1040nr ez Fringe Benefit Valuation Rules Vans, Vans. Filing 1040nr ez Vehicles Business use of (see Working condition benefits) Commuter highway, Commuter highway vehicle. Filing 1040nr ez Qualified nonpersonal use, Qualified nonpersonal use vehicles. Filing 1040nr ez Valuation of, Employer-provided vehicles. Filing 1040nr ez W Withholding rules, 4. Filing 1040nr ez Rules for Withholding, Depositing, and Reporting Working condition benefits, Working Condition Benefits Prev  Up     Home   More Online Publications
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Tax Relief for Victims of Severe Storms, Tornadoes, Straight-line Winds and Flooding in Kentucky

Updated 3/13/2012 to include Grayson, Larue, Ohio, Russell and Trimble counties.
Updated 3/12/2012 to include Magoffin and Wolfe counties.
Updated 3/9/2012 to include Bath, Campbell, Carroll, Grant, Martin, Montgomery and Rowan counties.

KY-2012-08, March 7, 2012

DETROIT — Victims of the severe storms, tornadoes, straight-line winds and flooding that started on Feb. 29, 2012 in parts of Kentucky may qualify for tax relief from the Internal Revenue Service.

The President has declared Bath, Campbell, Carroll, Grant, Grayson, Johnson, Kenton, Larue, Laurel, Lawrence, Magoffin, Martin, Menifee, Montgomery, Morgan, Ohio, Pendleton, Rowan, Russell, Trimble and Wolfe 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 Feb. 29, and on or before May 31, have been postponed to May 31, 2012. This includes the April 17 deadline for filing 2011 individual income tax returns, making income tax payments and making 2011 contributions to an individual retirement account (IRA).  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Feb. 29, and on or before March 15, as long as the deposits are made by March 15, 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 must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed 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 May 31 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 Feb. 29 and on or before May 31.

The IRS also gives affected taxpayers until May 31 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 Feb. 29 and on or before May 31.

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 Feb. 29 and on or before March 15 provided the taxpayer makes these deposits by March 15.

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 “Kentucky, Severe Storms, Tornadoes, Straight-line Winds, and Flooding” 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

Page Last Reviewed or Updated: 30-Jan-2014

The Filing 1040nr Ez

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