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How To File Tax Return

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How To File Tax Return

How to file tax return 3. How to file tax return   SIMPLE Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: SIMPLE IRA PlanWho Can Set Up a SIMPLE IRA Plan? Who Can Participate in a SIMPLE IRA Plan? How To Set Up a SIMPLE IRA Plan Notification Requirement Contribution Limits When To Deduct Contributions Where To Deduct Contributions Tax Treatment of Contributions Distributions (Withdrawals) More Information on SIMPLE IRA Plans SIMPLE 401(k) Plan Topics - This chapter discusses: SIMPLE IRA plan SIMPLE 401(k) plan Useful Items - You may want to see: Publications 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4284 SIMPLE IRA Plan Checklist 4334 SIMPLE IRA Plans for Small Businesses Forms (and Instructions) W-2 Wage and Tax Statement 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–Not for Use With a Designated Financial Institution 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–for Use With a Designated Financial Institution 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A savings incentive match plan for employees (SIMPLE plan) is a written arrangement that provides you and your employees with a simplified way to make contributions to provide retirement income. How to file tax return Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. How to file tax return In addition, you will contribute matching or nonelective contributions. How to file tax return SIMPLE plans can only be maintained on a calendar-year basis. How to file tax return A SIMPLE plan can be set up in either of the following ways. How to file tax return Using SIMPLE IRAs (SIMPLE IRA plan). How to file tax return As part of a 401(k) plan (SIMPLE 401(k) plan). How to file tax return Many financial institutions will help you set up a SIMPLE plan. How to file tax return SIMPLE IRA Plan A SIMPLE IRA plan is a retirement plan that uses SIMPLE IRAs for each eligible employee. How to file tax return Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. How to file tax return For the definition of an eligible employee, see Who Can Participate in a SIMPLE IRA Plan , later. How to file tax return Who Can Set Up a SIMPLE IRA Plan? You can set up a SIMPLE IRA plan if you meet both the following requirements. How to file tax return You meet the employee limit. How to file tax return You do not maintain another qualified plan unless the other plan is for collective bargaining employees. How to file tax return Employee limit. How to file tax return   You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year. How to file tax return Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. How to file tax return Employees include self-employed individuals who received earned income and leased employees (defined in chapter 1). How to file tax return   Once you set up a SIMPLE IRA plan, you must continue to meet the 100-employee limit each year you maintain the plan. How to file tax return Grace period for employers who cease to meet the 100-employee limit. How to file tax return   If you maintain the SIMPLE IRA plan for at least 1 year and you cease to meet the 100-employee limit in a later year, you will be treated as meeting it for the 2 calendar years immediately following the calendar year for which you last met it. How to file tax return   A different rule applies if you do not meet the 100-employee limit because of an acquisition, disposition, or similar transaction. How to file tax return Under this rule, the SIMPLE IRA plan will be treated as meeting the 100-employee limit for the year of the transaction and the 2 following years if both the following conditions are satisfied. How to file tax return Coverage under the plan has not significantly changed during the grace period. How to file tax return The SIMPLE IRA plan would have continued to qualify after the transaction if you had remained a separate employer. How to file tax return    The grace period for acquisitions, dispositions, and similar transactions also applies if, because of these types of transactions, you do not meet the rules explained under Other qualified plan or Who Can Participate in a SIMPLE IRA Plan, below. How to file tax return Other qualified plan. How to file tax return   The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year the SIMPLE IRA plan becomes effective. How to file tax return Exception. How to file tax return   If you maintain a qualified plan for collective bargaining employees, you are permitted to maintain a SIMPLE IRA plan for other employees. How to file tax return Who Can Participate in a SIMPLE IRA Plan? Eligible employee. How to file tax return   Any employee who received at least $5,000 in compensation during any 2 years preceding the current calendar year and is reasonably expected to receive at least $5,000 during the current calendar year is eligible to participate. How to file tax return The term “employee” includes a self-employed individual who received earned income. How to file tax return   You can use less restrictive eligibility requirements (but not more restrictive ones) by eliminating or reducing the prior year compensation requirements, the current year compensation requirements, or both. How to file tax return For example, you can allow participation for employees who received at least $3,000 in compensation during any preceding calendar year. How to file tax return However, you cannot impose any other conditions for participating in a SIMPLE IRA plan. How to file tax return Excludable employees. How to file tax return   The following employees do not need to be covered under a SIMPLE IRA plan. How to file tax return Employees who are covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. How to file tax return Nonresident alien employees who have received no U. How to file tax return S. How to file tax return source wages, salaries, or other personal services compensation from you. How to file tax return Compensation. How to file tax return   Compensation for employees is the total wages, tips, and other compensation from the employer subject to federal income tax withholding and the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. How to file tax return Compensation also includes the employee's salary reduction contributions made under this plan and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the employer on Form W-2. How to file tax return If you are self-employed, compensation is your net earnings from self-employment (line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040)) before subtracting any contributions made to the SIMPLE IRA plan for yourself. How to file tax return How To Set Up a SIMPLE IRA Plan You can use Form 5304-SIMPLE or Form 5305-SIMPLE to set up a SIMPLE IRA plan. How to file tax return Each form is a model savings incentive match plan for employees (SIMPLE) plan document. How to file tax return Which form you use depends on whether you select a financial institution or your employees select the institution that will receive the contributions. How to file tax return Use Form 5304-SIMPLE if you allow each plan participant to select the financial institution for receiving his or her SIMPLE IRA plan contributions. How to file tax return Use Form 5305-SIMPLE if you require that all contributions under the SIMPLE IRA plan be deposited initially at a designated financial institution. How to file tax return The SIMPLE IRA plan is adopted when you have completed all appropriate boxes and blanks on the form and you (and the designated financial institution, if any) have signed it. How to file tax return Keep the original form. How to file tax return Do not file it with the IRS. How to file tax return Other uses of the forms. How to file tax return   If you set up a SIMPLE IRA plan using Form 5304-SIMPLE or Form 5305-SIMPLE, you can use the form to satisfy other requirements, including the following. How to file tax return Meeting employer notification requirements for the SIMPLE IRA plan. How to file tax return Form 5304-SIMPLE and Form 5305-SIMPLE contain a Model Notification to Eligible Employees that provides the necessary information to the employee. How to file tax return Maintaining the SIMPLE IRA plan records and proving you set up a SIMPLE IRA plan for employees. How to file tax return Deadline for setting up a SIMPLE IRA plan. How to file tax return   You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you did not previously maintain a SIMPLE IRA plan. How to file tax return This requirement does not apply if you are a new employer that comes into existence after October 1 of the year the SIMPLE IRA plan is set up and you set up a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence. How to file tax return If you previously maintained a SIMPLE IRA plan, you can set up a SIMPLE IRA plan effective only on January 1 of a year. How to file tax return A SIMPLE IRA plan cannot have an effective date that is before the date you actually adopt the plan. How to file tax return Setting up a SIMPLE IRA. How to file tax return   SIMPLE IRAs are the individual retirement accounts or annuities into which the contributions are deposited. How to file tax return A SIMPLE IRA must be set up for each eligible employee. How to file tax return Forms 5305-S, SIMPLE Individual Retirement Trust Account, and 5305-SA, SIMPLE Individual Retirement Custodial Account, are model trust and custodial account documents the participant and the trustee (or custodian) can use for this purpose. How to file tax return   A SIMPLE IRA cannot be a Roth IRA. How to file tax return Contributions to a SIMPLE IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. How to file tax return Deadline for setting up a SIMPLE IRA. How to file tax return   A SIMPLE IRA must be set up for an employee before the first date by which a contribution is required to be deposited into the employee's IRA. How to file tax return See Time limits for contributing funds , later, under Contribution Limits. How to file tax return Credit for startup costs. How to file tax return   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE IRA plan that first became effective in 2013. How to file tax return For more information, see Credit for startup costs under Reminders, earlier. How to file tax return Notification Requirement If you adopt a SIMPLE IRA plan, you must notify each employee of the following information before the beginning of the election period. How to file tax return The employee's opportunity to make or change a salary reduction choice under a SIMPLE IRA plan. How to file tax return Your decision to make either matching contributions or nonelective contributions (discussed later). How to file tax return A summary description provided by the financial institution. How to file tax return Written notice that his or her balance can be transferred without cost or penalty if they use a designated financial institution. How to file tax return Election period. How to file tax return   The election period is generally the 60-day period immediately preceding January 1 of a calendar year (November 2 to December 31 of the preceding calendar year). How to file tax return However, the dates of this period are modified if you set up a SIMPLE IRA plan in mid-year (for example, on July 1) or if the 60-day period falls before the first day an employee becomes eligible to participate in the SIMPLE IRA plan. How to file tax return   A SIMPLE IRA plan can provide longer periods for permitting employees to enter into salary reduction agreements or to modify prior agreements. How to file tax return For example, a SIMPLE IRA plan can provide a 90-day election period instead of the 60-day period. How to file tax return Similarly, in addition to the 60-day period, a SIMPLE IRA plan can provide quarterly election periods during the 30 days before each calendar quarter, other than the first quarter of each year. How to file tax return Contribution Limits Contributions are made up of salary reduction contributions and employer contributions. How to file tax return You, as the employer, must make either matching contributions or nonelective contributions, defined later. How to file tax return No other contributions can be made to the SIMPLE IRA plan. How to file tax return These contributions, which you can deduct, must be made timely. How to file tax return See Time limits for contributing funds , later. How to file tax return Salary reduction contributions. How to file tax return   The amount the employee chooses to have you contribute to a SIMPLE IRA on his or her behalf cannot be more than $12,000 for 2013 and 2014. How to file tax return These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount. How to file tax return You cannot place restrictions on the contribution amount (such as limiting the contribution percentage), except to comply with the $12,000 limit. How to file tax return   If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($17,500 for 2013 and 2014) on exclusion of salary reduction contributions and other elective deferrals. How to file tax return Catch-up contributions. How to file tax return   A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. How to file tax return The catch-up contribution limit for 2013 and 2014 for SIMPLE IRA plans is $2,500. How to file tax return Salary reduction contributions are not treated as catch-up contributions for 2013 or 2014 until they exceed $12,000. How to file tax return However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. How to file tax return The catch-up contribution limit. How to file tax return The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions. How to file tax return Employer matching contributions. How to file tax return   You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. How to file tax return This requirement does not apply if you make nonelective contributions as discussed later. How to file tax return Example. How to file tax return In 2013, your employee, John Rose, earned $25,000 and chose to defer 5% of his salary. How to file tax return Your net earnings from self-employment are $40,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. How to file tax return You make 3% matching contributions. How to file tax return The total contribution you make for John is $2,000, figured as follows. How to file tax return Salary reduction contributions ($25,000 × . How to file tax return 05) $1,250 Employer matching contribution ($25,000 × . How to file tax return 03) 750 Total contributions $2,000     The total contribution you make for yourself is $5,200, figured as follows. How to file tax return Salary reduction contributions ($40,000 × . How to file tax return 10) $4,000 Employer matching contribution ($40,000 × . How to file tax return 03) 1,200 Total contributions $5,200 Lower percentage. How to file tax return   If you choose a matching contribution less than 3%, the percentage must be at least 1%. How to file tax return You must notify the employees of the lower match within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. How to file tax return You cannot choose a percentage less than 3% for more than 2 years during the 5-year period that ends with (and includes) the year for which the choice is effective. How to file tax return Nonelective contributions. How to file tax return   Instead of matching contributions, you can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount you select) of compensation from you for the year. How to file tax return If you make this choice, you must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. How to file tax return Only $255,000 of the employee's compensation can be taken into account to figure the contribution limit in 2013 ($260,000 in 2014). How to file tax return   If you choose this 2% contribution formula, you must notify the employees within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. How to file tax return Example 1. How to file tax return In 2013, your employee, Jane Wood, earned $36,000 and chose to have you contribute 10% of her salary. How to file tax return Your net earnings from self-employment are $50,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. How to file tax return You make a 2% nonelective contribution. How to file tax return Both of you are under age 50. How to file tax return The total contribution you make for Jane is $4,320, figured as follows. How to file tax return Salary reduction contributions ($36,000 × . How to file tax return 10) $3,600 2% nonelective contributions ($36,000 × . How to file tax return 02) 720 Total contributions $4,320     The total contribution you make for yourself is $6,000, figured as follows. How to file tax return Salary reduction contributions ($50,000 × . How to file tax return 10) $5,000 2% nonelective contributions ($50,000 × . How to file tax return 02) 1,000 Total contributions $6,000 Example 2. How to file tax return Using the same facts as in Example 1, above, the maximum contribution you make for Jane or for yourself if you each earned $75,000 is $13,500, figured as follows. How to file tax return Salary reduction contributions (maximum amount allowed) $12,000 2% nonelective contributions ($75,000 × . How to file tax return 02) 1,500 Total contributions $13,500 Time limits for contributing funds. How to file tax return   You must make the salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. How to file tax return You must make matching contributions or nonelective contributions by the due date (including extensions) for filing your federal income tax return for the year. How to file tax return Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions. How to file tax return When To Deduct Contributions You can deduct SIMPLE IRA contributions in the tax year within which the calendar year for which contributions were made ends. How to file tax return You can deduct contributions for a particular tax year if they are made for that tax year and are made by the due date (including extensions) of your federal income tax return for that year. How to file tax return Example 1. How to file tax return Your tax year is the fiscal year ending June 30. How to file tax return Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2013 before July 1, 2013) are deductible in the tax year ending June 30, 2014. How to file tax return Example 2. How to file tax return You are a sole proprietor whose tax year is the calendar year. How to file tax return Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2014 by April 15, 2014) are deductible in the 2013 tax year. How to file tax return Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. How to file tax return For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120 or Form 1120S. How to file tax return Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. How to file tax return (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you receive from the partnership. How to file tax return ) Tax Treatment of Contributions You can deduct your contributions and your employees can exclude these contributions from their gross income. How to file tax return SIMPLE IRA plan contributions are not subject to federal income tax withholding. How to file tax return However, salary reduction contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes. How to file tax return Matching and nonelective contributions are not subject to these taxes. How to file tax return Reporting on Form W-2. How to file tax return   Do not include SIMPLE IRA plan contributions in the “Wages, tips, other compensation” box of Form W-2. How to file tax return You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. How to file tax return You must also include them in box 12. How to file tax return Mark the “Retirement plan” checkbox in box 13. How to file tax return For more information, see the Form W-2 instructions. How to file tax return Distributions (Withdrawals) Distributions from a SIMPLE IRA are subject to IRA rules and generally are includible in income for the year received. How to file tax return Tax-free rollovers can be made from one SIMPLE IRA into another SIMPLE IRA. How to file tax return However, a rollover from a SIMPLE IRA to a non-SIMPLE IRA can be made tax free only after a 2-year participation in the SIMPLE IRA plan. How to file tax return Generally, you or your employee must begin to receive distributions from a SIMPLE IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. How to file tax return Early withdrawals generally are subject to a 10% additional tax. How to file tax return However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation. How to file tax return More information. How to file tax return   See Publication 590 for information about IRA rules, including those on the tax treatment of distributions, rollovers, required distributions, and income tax withholding. How to file tax return More Information on SIMPLE IRA Plans If you need help to set up or maintain a SIMPLE IRA plan, go to the IRS website and search SIMPLE IRA Plan. How to file tax return SIMPLE 401(k) Plan You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plan. How to file tax return A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4, including the required distribution rules. How to file tax return However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules discussed in chapter 4 if the plan meets the conditions listed below. How to file tax return Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $12,000 for 2013 and 2014. How to file tax return If permitted under the plan, an employee who is age 50 or over can also make a catch-up contribution of up to $2,500 for 2013 and 2014. How to file tax return See Catch-up contributions , earlier under Contribution Limits. How to file tax return You must make either: Matching contributions up to 3% of compensation for the year, or Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year. How to file tax return No other contributions can be made to the trust. How to file tax return No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan sponsored by you on behalf of any employee eligible to participate in the SIMPLE 401(k) plan. How to file tax return The employee's rights to any contributions are nonforfeitable. How to file tax return No more than $255,000 of the employee's compensation can be taken into account in figuring matching contributions and nonelective contributions in 2013 ($260,000 in 2014). How to file tax return Compensation is defined earlier in this chapter. How to file tax return Employee notification. How to file tax return   The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. How to file tax return See Notification Requirement in this chapter. How to file tax return Credit for startup costs. How to file tax return   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE 401(k) plan that first became effective in 2013. How to file tax return For more information, see Credit for startup costs under Reminders, earlier. How to file tax return Note on Forms. How to file tax return   Please note that Forms 5304-SIMPLE and 5305-SIMPLE can not be used to establish a SIMPLE 401(k) plan. How to file tax return To set up a SIMPLE 401(k) plan, see Adopting a Written Plan in chapter 4. How to file tax return Prev  Up  Next   Home   More Online Publications
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Letter 1962C Frequently Asked Questions (FAQs)

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This letter confirms your written request for a Direct Debit Installment Agreement has been approved. It explains the fees we charge for establishing your agreement. It also explains what to do if you qualify for a Low Income Fee Reduction.

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Page Last Reviewed or Updated: 30-Jan-2014

The How To File Tax Return

How to file tax return Publication 4492-B - Additional Material Prev  Up  Next   Home   More Online Publications