Excess Contributions to a SEP

Income Taxes, Social Security and Medicare Taxes:

SEP contributions, up to the annual limits, are not subject to income taxes, social security taxes, or Medicare taxes. However, excess contributions are subject to taxes. To remove an excess contribution to a SEP, get an "SEP IRA Excess Removal" form from your plan administrator

Excise Tax on Excess Contributions

Generally, nondeductible contributions (e.g., excess contributions) made to SEPS, qualified pension and profit-sharing plans may be subject to a 10% excise tax.

Exception for self-employed persons:

Any contributions made by a self-employed person to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan are not subject to the 10% excise tax.

Form 5330 is used to report nondeductible SEP contributions.

Carryover of Nondeductible Contributions

Nondeductible SEP contributions may be carried over to the next year.

However, the carryover amount must be added to any contribution made in the later year (if any) and the total amount is subject to the annual deduction limit for that year.

Form W-2 Reporting

You do not report SEP contributions you make on behalf of your employees on their W-2 form.

These contributions are not included in their gross income and are not subject to income taxes, social security or Medicare taxes.

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