Simple Ira Salary Reduction Agreement

However, if you are an individual entrepreneur or partner, you would deduct your own salary reduction contributions and your own contributions, whether or not matching or not, on Form 1040, line 28. Example: Joe`s annual salary is $US 70,000 and he contributed 1% of his compensation, or $700, to his employer`s SIMPLE IRA plan. Joe`s employer must make an equivalent contribution of $700, since the employer only has an obligation to reach the amount that Joe actually contributes during the year, up to a maximum of 3% of his calendar year remuneration. You must file employees` salary reduction contributions to their directors in cash within 30 days of the end of the month in which the amounts would have been paid to employees in cash in accordance with IRS rules (IRC Section 408(p)(5)(A)(i)). For common law self-employed persons, the latest date for filing wage reduction contributions for a calendar year is 30 days after the end of the year or January 30. You may, but are not required to, limit ineligible contributions to eligible employees who have at least US$5,000 (or a lower amount by the employer) for the year. Example: Bob`s annual salary is $US 50,000 and he starts contributing to his employer`s SIMPLE IRA plan on September 1. It is contributing to 1,536 $US until 31 December. Bob`s employer must offset Bob`s contributions up to 3% of Bob`s calendar year compensation or US$1500 (3% out of $50,000). Never mind that Bob only contributed to the plan in the last four months of the calendar year.

The Ministry of Labour`s rule for depositing salary reduction contributions may be stricter. You have a seven-day safe harbor rule. A salary reduction is an amount that an employee has contributed to their SIMPLE IRA instead of being paid in cash. Employers must allow their employees to opt for wage reduction contributions at a level determined by employees, expressed as a percentage of the year`s compensation or in specified dollars. An employer cannot limit the amount of an employee`s salary reduction contributions, unless it respects the annual salary reduction contribution ceiling. No, staff contributions to a SIMPLE IRA plan cannot be deducted from their income by members on their Form 1040. Employee contributions to the salary reduction to a SIMPLE IRA are not listed in the “Wages, Tips, Other Compensation” field of Form W-2, Salary and Income Return PDF, and are not recorded as income on your Form 1040. For example, John earns $60,000 a year….