Simplified Employee Pension (SEP) A simplified employee pension (SEP) is a written plan that allowsyou to make contributions toward your own (if you are self-employed)and your employees' retirement without getting involved in the morecomplex qualified plan. But, some advantages available to qualifiedplans, such as the special tax treatment that may apply to qualifiedplan lump-sum distributions, do not apply to SEPs. Under a SEP, you make the contributions to a traditional individualretirement arrangement (called a SEP-IRA) set up by or for eacheligible employee. SEP-IRAs are owned and controlled by the employee,and you make contributions to the financial institution where theSEP-IRA is maintained. SEP-IRAs are set up for, at a minimum, each eligible employee(defined later). A SEP-IRA may have to be set up for a leasedemployee (defined earlier under Definitions You Need ToKnow), but does not need to be set up for excludableemployees (defined later). Eligible employee.An eligible employee is an individual who has: Reached age 21, Worked for you in at least 3 of the last 5 years, and Received at least $400 in compensation from you for1999. TaxTip: You can use less restrictive participation requirements than thoselisted, but not more restrictive ones. Excludable employees.The following employees can be excluded from coverage under a SEP. Employees who are covered by a union agreement and whoseretirement benefits were bargained for in good faith by their unionand you. Nonresident alien employees who have no U.S.-source wages,salaries, or other personal services compensation from you. For moreinformation about nonresident aliens, see Publication 519, U.S.Tax Guide for Aliens. Setting Up a SEP There are three basic steps in setting up a SEP. You must execute a formal written agreement to providebenefits to all eligible employees. You must give each eligible employee certain informationabout the SEP. A SEP-IRA must be set up by or for each eligibleemployee. TaxTip: Many financial institutions will help you set up a SEP.    Formal written agreement.You must execute a formal written agreement to provide benefits toall eligible employees under a SEP. You can satisfy the writtenagreement requirement by adopting an IRS model SEP using Form5305-SEP. However, see When not to use Form5305-SEP, later. If you adopt an IRS model SEP using Form 5305-SEP, no priorIRS approval or determination letter is required. Keep the originalform. Do not file it with the IRS. Also, using Form 5305-SEPwill usually relieve you from filing annual retirement planinformation returns with the IRS and the Department of Labor. See theForm 5305-SEP instructions for details. When not to use Form 5305-SEP.You cannot use Form 5305-SEP if any of the following apply. You currently maintain any other qualified retirement plan.This does not prevent you from maintaining another SEP. You have maintained a defined benefit plan (defined laterunder Qualified Plans (Keogh Plans)), even if it is nowterminated. You have any eligible employees for whom IRAs have not beenset up. You use the services of leased employees (asdescribed earlier under Definitions You Need toKnow). You are a member of an affiliated service group (asdescribed in section 414(m)), a controlled group of corporations (asdescribed in section 414(b)), or trades or businesses under commoncontrol (as described in section 414(c)), unless all eligibleemployees of all the members of these groups, trades, or businessesparticipate under the SEP. You do not pay the cost of the SEP contributions. Information you must give to employees.You must give each eligible employee a copy of Form 5305-SEP,its instructions, and the other information listed in the Form5305-SEP instructions. An IRS model SEP is not consideredadopted until you give each employee this information. Setting up the employee's SEP-IRA.A SEP-IRA must be set up by or for each eligible employee. SEP-IRAscan be set up with banks, insurance companies, or other qualifiedfinancial institutions. You send SEP contributions to the financialinstitution where the SEP-IRA is maintained. Deadline for setting up a SEP.You can set up a SEP for a year as late as the due date (includingextensions) of your income tax return for that year. How MuchCan I Contribute? The SEP rules permit you to contribute a limited amount of moneyeach year to each employee's SEP-IRA. If you are self-employed, youcan contribute to your own SEP-IRA. Contributions must be in the formof money (cash, check, or money order). You cannot contributeproperty. However, participants may be able to transfer or roll overcertain property from one retirement plan to another. See Publication 590 for more information about rollovers. You do not have to make contributions every year. But if you makecontributions, they must be based on a written allocation formula andmust not discriminate in favor of highly compensated employees(defined earlier under Definitions You Need To Know). Whenyou contribute, you must contribute to the SEP-IRAs of allparticipants who actually performed personal services during the yearfor which the contributions are made, even employees who die orterminate employment before the contributions are made. The contributions you make under a SEP are treated as if made to aqualified pension, stock bonus, profit-sharing, or annuity plan.Consequently, contributions are deductible within limits, as discussedlater, and generally are not taxable to the plan participants. A SEP-IRA cannot be designated as a Roth IRA. Employercontributions to a SEP-IRA will not affect the amount that anindividual can contribute to a Roth IRA. Time limit for making contributions.Cascais luxury hotelsTo deduct contributions for a year, you must make the contributionsby the due date (including extensions) of your tax return for theyear. Contribution Limits Contributions you make for a year to a common-law employee'sSEP-IRA cannot be more than the smaller of 15% of the employee'scompensation or $30,000. Compensation generally does not include yourcontributions to the SEP. However, if you have a salary reductionarrangement, see Employee compensation under SalaryReduction Simplified Employee Pension (SARSEP), later. Example.Your employee, Mary Plant, earned $21,000 for the year. The maximumcontribution you can make to her SEP-IRA is $3,150 (15% x $21,000). Contributions for yourself.The annual limits on your contributions to a common-law employee'sSEP-IRA also apply to contributions you make to your own SEP-IRA.However, special rules apply when figuring your maximum deductiblecontribution. See Deduction Limit for Self-Employed Individuals,later. Annual compensation limit.You cannot consider the part of an employee's compensation that isover $160,000 when figuring your contribution limit for that employee.Therefore, $24,000 is the maximum contribution amount for an eligibleemployee whose compensation is $160,000 or more. More than one plan.If you contribute to a defined contribution plan (defined laterunder Qualified Plans (Keogh Plans)), annual additions toan account are limited to the lesser of $30,000 or 25% of theparticipant's compensation. When you figure this limit, you must addyour contributions to all defined contribution plans. Because a SEP isconsidered a defined contribution plan for this limit, yourcontributions to a SEP must be added to your contributions to otherdefined contribution plans. Tax treatment of excess contributions.Excess contributions are your contributions to an employee'sSEP-IRA (or to your own SEP-IRA) for a year that are more than thelesser of the following amounts. 15% of the employee's compensation (or, for you, 13.0435% ofyour net earnings from self-employment). $30,000. Excess contributions are included in the employee's income forthe year and are treated as contributions by the employee to his orher SEP-IRA. For more information on employee tax treatment of excesscontributions, see chapter 4 in Publication 590. Reporting on Form W-2.Do not include SEP contributions on your employee's Form W-2,Wage and Tax Statement, unless contributions were madeunder a salary reduction arrangement (discussed later). How Much Can I Deduct? Generally, you can deduct the contributions you make each year toeach employee's SEP-IRA. If you are self-employed, you can deduct thecontributions you make each year to your own SEP-IRA. Deduction Limitfor Your Contributionson Behalf of Employees The most you can deduct for your contributions for participants isthe lesser of the following amounts. Your contributions (including any elective deferrals andexcess contributions carryover). 15% of the compensation (limited to $160,000 perparticipant) paid to them during the year from the business that hasthe plan. Deduction Limit forSelf-Employed Individuals If you contribute to your own SEP-IRA, you need to make a specialcomputation to figure your maximum deduction for these contributions.When figuring the deduction for contributions made to your ownSEP-IRA, compensation is your net earnings from self-employment(defined under Definitions You Need To Know), which takesinto account both the following deductions. The deduction for one-half of your self-employmenttax. The deduction for contributions to your own SEP-IRA. The deduction for contributions to your own SEP-IRA and your netearnings depend on each other. For this reason, you determine thededuction for contributions to your own SEP-IRA indirectly by reducingthe contribution rate called for in your plan. To do this, use theRate Table for Self-Employed or the Rate Worksheet forSelf-Employed, whichever is appropriate for your plan'scontribution rate, in the Appendix. Then figure yourmaximum deduction by using the Deduction Worksheet forSelf-Employed in the Appendix. Deduction Limitsfor Multiple Plans For the deduction limits, treat all of your qualified definedcontribution plans as a single plan and all of your qualified definedbenefit plans as a single plan. See Kinds of Plans, laterunder Qualified Plans (Keogh Plans) for the definitions ofdefined contribution plans and defined benefit plans. If you have bothkinds of plans, a SEP is treated as a separate profit-sharing (definedcontribution) plan. A qualified plan is a plan that meetsthe requirements discussed later under Qualification Rules.Izola prenotazione albergoFor information about the special deduction limits, see Deductionlimit for multiple plans under Qualified Plans (KeoghPlans), later. SEP and profit-sharing plans.If you also contribute to a qualified profit-sharing plan, you mustreduce the 15% deduction limit for that profit-sharing plan by theallowable deduction for contributions to the SEP-IRAs of thoseparticipating in both the SEP plan and the profit-sharing plan. Carryover ofExcess SEP Contributions If you made SEP contributions in excess of the deduction limit(nondeductible contributions), you can carry over and deduct theexcess in later years. However, the excess contributions carryover,when combined with the contribution for the later year, cannot be morethan the deduction limit for that year. If you also contributed to adefined benefit plan or defined contribution plan, see Carryoverof Excess Contributions, under Qualified Plans (KeoghPlans), later, for the carryover limit. Excise tax.If you made nondeductible (excess) contributions to a SEP, you maybe subject to a 10% excise tax. For information about the excise tax,see Excise Tax for Nondeductible (Excess) Contributionsunder Qualified Plans (Keogh Plans), later. When To Deduct Contributions When you can deduct contributions made for a year depends on thetax year on which the SEP is maintained. If the SEP is maintained on a calendar year basis, youdeduct contributions made for a year on your tax return for the yearwith or within which the calendar year ends. If you file your tax return and maintain the SEP using afiscal year or short tax year, you deduct contributions made for ayear on your tax return for that year. Where To Deduct Contributions Deduct contributions for yourself on line 29 of Form 1040. Youdeduct contributions for your employees on Schedule C (Form 1040), onSchedule F (Form 1040), on Form 1120S, or on Form 1065, whicheverapplies to you. If you are a partner, the partnership passes its deduction to youfor the contributions it made for you. The partnership will reportthese contributions on Schedule K-1 (Form 1065). You deduct thecontributions on line 29 of Form 1040. Salary ReductionSimplified EmployeePension (SARSEP) A SARSEP is a SEP set up before 1997 that includes asalary reduction arrangement. (See the Caution, next).Under a SARSEP, your employees can choose to have you contribute partof their pay to their SEP-IRAs. The income tax on the partcontributed is deferred. This choice is called an electivedeferral, which remains tax free until distributed (withdrawn). Caution: You are not allowed to set up a SARSEPafter 1996. However, participants (includingemployees hired after 1996) in a SARSEP that was set up before 1997can continue to have you contribute part of their pay to the plan. Ifyou are interested in setting up a retirement plan that includes asalary reduction arrangement, see SIMPLE Plans, later. Who can have a SARSEP?A SARSEP that was set up before 1997 is available to you and youreligible employees only if all the following requirements are met. At least 50% of your employees eligible to participatechoose the salary reduction arrangement. You have 25 or fewer employees who were eligible toparticipate in the SEP (or would have been eligible to participate ifyou had maintained a SEP) at any time during the precedingyear. The SEP meets the SARSEP ADP test. SARSEP ADP test.Under the ADP test, the amount deferred each year by each eligiblehighly compensated employee as a percentage of pay (the deferralpercentage) cannot be more than 125% of the average deferralpercentage (ADP) of all other employees eligible to participate. Ahighly compensated employee is defined earlier under DefinitionsYou Need To Know. Deferral percentage.The deferral percentage for an employee for a year is figured asfollows. The deferral percentage Who cannot have a SARSEP?A state or local government or any of its political subdivisions,agencies, or instrumentalities, or a tax-exempt organization cannothave a SEP that includes a salary reduction arrangement. Limits on Elective Deferrals The most a participant can choose to defer for calendar year 1999is the lesser of the following amounts. 15% of the participant's compensation (limited to $160,000of the participant's compensation). $10,000. The $10,000 limit applies to the total electivedeferrals the employee makes for the year to a SEP and any of thefollowing. Cash or deferred arrangement (section 401(k) plan). Salary reduction arrangement under a tax-sheltered annuityplan (section 403(b) plan). SIMPLE IRA plan. Overall limit on SEP contributions.If you also make nonelective contributions to a SEP-IRA, the totalof the nonelective and elective contributions to that SEP-IRA cannotbe more than the lesser of $30,000 or 15% of the employee'scompensation. The same rule applies to contributions you make to yourown SEP-IRA. See Contribution Limits, earlier. Employee compensation.For figuring the elective deferral amount, compensation isgenerally the amount you pay to the employee for the year.Compensation includes the elective deferral amount and other amountsdeferred in certain employee benefit plans. See Compensation,earlier under Definitions You Need To Know. Theseamounts are included in figuring your employees' total contributionseven though they are not included in the income of your employees forincome tax purposes. TaxTip: You can choose not to treat the deferralamount as compensation, as discussed later. hoteles en MalmoTo figure the deferral amount, multiply the employee's compensationby the deferral contribution rate. However, you must always use thereduced rate method to determine the maximum deductible contribution(13.0435% of unreduced compensation). This is the same method you useto figure your deduction for contributions you make to your ownSEP-IRA. Example 1.Jim's SARSEP calls for a deferral contribution rate of 10% of hissalary. Jim's salary for the year is $30,000 (before reduction for thedeferral). You multiply Jim's salary by 10% to get his deferral amountof $3,000. Your maximum deduction for elective deferrals and anynonelective contributions would be $3,913.05 ($30,000 .130435). On Jim's Form W-2, you show his total wages as $27,000($30,000 - $3,000). Social security wages and Medicare wageswill each be $30,000. Jim will report $27,000 as wages on hisindividual income tax return. Choice not to treat deferrals as compensation.You can choose not to treat elective deferrals (and other amountsdeferred in certain employee benefit plans) for a year as compensationunder your SARSEP. You may use this method for calculating deferralpercentages for the SARSEP ADP test defined earlier. The deferral amount and the compensation (minus the deferral)depend on each other. For this reason, you figure the deferral amountindirectly by reducing the contribution rate for deferrals called forunder the salary reduction arrangement. This method is the same onethat you use to figure your deduction for contributions you make toyour own SEP-IRA. You must also use the reduced rate method todetermine the maximum deductible contribution (13.0435% of unreducedcompensation). To figure the deferral amount, use either the rate table or rateworksheet in the Appendix. Use the rate table if thedeferral contribution rate called for under the SARSEP is a wholenumber. Otherwise, use the rate worksheet. When using the rate table,first locate the deferral contribution rate in Column A.Then read across to find the reduced rate in Column B.Multiply the reduced rate by your employee's compensation to getthe deferral amount. Example 2.The facts are the same as in Example 1 except that you chose not totreat deferrals as compensation under the arrangement. To figure thedeferral amount, you multiply Jim's salary of $30,000 by 0.090909 (thereduced rate equivalent of 10%) to get the deferral amount of$2,727.27. Your maximum deduction for elective deferrals and anynonelective contributions would be $3,913.05 ($30,000 .130435). beste casinos onlineOn Jim's Form W-2, you show his total wages as $27,272.73($30,000 minus $2,727.27). Social security wages and Medicare wageswill each be $30,000. Jim will report $27,272.73 as wages on hisindividual income tax return. Alternative definitions of compensation.In addition to the general definition of compensation underDefinitions You Need To Know and the choice described inthe preceding paragraphs, you can use any definition of compensationthat meets all the following conditions. It is reasonable. It is not designed to favor highly compensatedemployees. It provides that the average percentage of totalcompensation used for highly compensated employees as a group for theyear is not more than minimally higher than the average percentage oftotal compensation used for all other employees as a group. Compensation of self-employed individuals.If you are self-employed, compensation is your net earnings fromself-employment as defined earlier under Definitions You Need ToKnow. To figure the deferral amount, you must use a reduced rate insteadof the deferral contribution rate called for under the SARSEP. Useeither the rate table or rate worksheet in the Appendix toget the reduced rate. Then use the deduction worksheet to figure thedeferral amount. Compensation does not include tax-free items (or deductions relatedto them) other than foreign earned income and housing cost amounts. Compensation of disabled participants.You may be able to choose to use special rules to determinecompensation for a participant who is permanently and totallydisabled. Under these rules, compensation means the compensation theparticipant would have received if paid at the rate paid immediatelybefore becoming permanently and totally disabled. See Internal RevenueCode section 415(c)(3)(C) for details. Tax treatment of deferrals.You can deduct your deferrals that, when added to your other SEPcontributions, are not more than the limits under How Much Can IDeduct?, earlier. Elective deferrals that are not more than the limit discussedearlier are excluded from your employees' wages subject to federalincome tax in the year of deferral. However, these deferrals areincluded in wages for social security, Medicare, and federalunemployment (FUTA) tax. Excess deferrals.For 1999, excess deferrals are the elective deferrals for the yearthat are more than the $10,000 limit discussed earlier. The treatmentof excess deferrals made under a SARSEP is similar to the treatment ofexcess deferrals made under a qualified plan. See Treatment ofExcess Deferrals under Qualified Plans (Keogh Plans),later. Excess SEP contributions.Excess SEP contributions are elective deferrals of highlycompensated employees that are more than the amount permitted underthe SARSEP ADP test. You must notify your highly compensated employeeswithin 2 1/2 months after the end of the plan year oftheir excess SEP contributions. If you do not notify them within thistime period, you must pay a 10% tax on the excess. For an explanationof the notification requirements, see Revenue Procedure 91-44 inCumulative Bulletin 1991-2. If you adopted a SARSEP using Form5305A-SEP, the notification requirements are explained in theinstructions for that form. Reporting on Form W-2.Do not include elective deferrals in the "Wages, tips, othercompensation" box of Form W-2. You must, however, includethem in the "Social security wages" and "Medicare wages andtips" boxes. You must also include them in box 13. Mark the"Deferred compensation" checkbox in box 15. For more information,see the Form W-2 instructions. Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA.Also, you cannot make your contributions on the condition that anypart of them must be kept in the account. Distributions are subject to IRA rules. For information about IRArules, including the tax treatment of distributions, rollovers,required distributions, and income tax withholding, see Publication 590. Additional Taxes The tax advantages of using SEP-IRAs for retirement savings can beoffset by additional taxes. There are additional taxes for all thefollowing actions. Making excess contributions. Making early withdrawals. Not making required withdrawals. For information about these taxes, see chapter 1 in Publication 590. Also, a SEP-IRA may be disqualified, or an excise tax may apply,if the account is involved in a prohibited transaction, discussednext. Prohibited transaction.If an employee improperly uses his or her SEP-IRA, such as byborrowing money from it, the employee has engaged in a prohibitedtransaction. In that case, the SEP-IRA will no longer qualify as anIRA. For a list of prohibited transactions, see ProhibitedTransactions under Qualified Plans (Keogh Plans),later. Effect on employee.If a SEP-IRA is disqualified because of a prohibited transaction,the assets in the account will be treated as having been distributedto the employee of that SEP-IRA on the first day of the year in whichthe transaction occurred. The employee must include in income theassets' fair market value (on the first day of the year) that is morethan any cost basis in the account. Also, the employee may have to paythe additional tax for making early withdrawals. For more information,see Tax on Prohibited Transactions under QualifiedPlans (Keogh Plans), later. Reporting andDisclosure Requirements If you set up a SEP using Form 5305-SEP or Form5305A-SEP (see the Caution later), you must giveyour eligible employees certain information about the SEP at the timeyou set it up. See Setting Up a SEP, earlier. Also, youmust give your eligible employees a statement each year showing anycontributions to their SEP-IRAs. If you set up a salary reduction SEP,you must also give them notice of any excess contributions. Fordetails about other information you must give them, see theinstructions for either of these forms. Even if you did not use Form 5305-SEP or Form5305A-SEP to set up your SEP, you must give your employeesinformation similar to that described above. For more information, seethe instructions for either Form 5305-SEP or Form5305A-SEP. Caution: Form 5305A-SEP is used to set up a SEP that includes a salaryreduction arrangement. SEPs that include a salary reductionarrangement cannot be set up after 1996.However, eligible employees hired after 1996 can have you contributepart of their pay to a SARSEP set up before 1997. See SalaryReduction Simplified Employee Pension (SARSEP), earlier.