simple plan

Submitted by Jon Heller on Thu, 2020-10-01 12:25

I have a client who owns a business that has a Simple plan. His accountant wants him to make a prior year contribution with employer match to his simple (has an extension to Oct. 15th. The contribution will not be coming from payroll deduction but his personal checking account. My questions are:
1. Can he make a prior year contribution
2. Can he contribute to the Simple from his bank account not a payroll deduction
Thanks



Submitted by William Tuttle on Thu, 2020-10-01 23:13

  • The October 15th extended due date implies that the owner is self-employed. If so, he can make both an employee deferral and employer contribution by the extended due date from personal funds.
  • However, the referral to “payroll” confuses the issue. A self-employed individual should not be paid on a W-2. An S-Corp 2% shareholder-employee would be paid via W-2. However, if that was the case, the corporation’s extended due date was 9/15/19
  • A W-2 employee’s deferral would have had to come from compensation not already received by 12/31/19. No employee deferral no employer match.


Submitted by Nathan Kastner on Mon, 2020-10-05 16:13

This sounds like one of those situations in which the business owner doesn’t normally participate in the SIMPLE plan that he’s created for his employees, but in order to get his tax liability down, the accountant is recommending that he become an “11th hour participant”. Is that accurate? As per the IRS, employee deferrals must be deposited no greater than 30 days after the month of witholding. If the business has no common law employees, the latest date for depositing salary reduction contributions for a calendar year is 30 days after the end of the year. In other words, January 30th. So I don’t see how an employee contribution can legally be made at this point. And with no legal employee deferrals, there can be no match. 



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