Form W-2 Reporting for SIMPLE IRA Contributions

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Form W-2 Reporting for SIMPLE IRA Contributions

Contributions to an employees SIMPLE IRA may be made by both the employee and the employer.

Employer Contributions:

Matching or nonelective contributions made by an employer to an employee's SIMPLE IRA are NOT subject to federal income taxes, social security or Medicare taxes, and are NOT to be shown on Form W-2.

Employee Salary Reduction Contributions:

Federal Income Taxes -

Amounts withheld from an employee's gross pay for contributions to his/her SIMPLE IRA are called salary reduction contributions.

These contributions are NOT subject to federal income taxes.

Do NOT include salary reduction contributions in the box for Wages, tips, other compensation on Form W-2 (Box 1).

FICA Taxes (Federal Insurance Contribution Act) -

Salary reduction contributions ARE subject to social security and and Medicare taxes and are included in the boxes on Form W-2 for Social Security wages (Box 3) and Medicare wages and tips (Box 5).

W-2 Code to Use in Box 12:

Enter Code D or S, whichever applies

Code D: Elective deferrals to 401(k) plan
Code S: SIMPLE retirement account (408(p) plan)

Example:

Salary reduction contributions reported on Form W-2 for Jack Jones:

Gross Wages: $40,000
Jack's salary reduction contributions to his SIMPLE plan total $5,000

Result:

Box 1,
- Wages, tips, other compensation: $35,000.
- The $5,000 contribution is not subject to federal income taxes
Box 3, Social security wages: $40,000
Box 5, Medicare wages and tips: $40,000
- The $5,000 contribution is subject to social security and Medicare taxes
Box 12:
- Enter $5,000
- Enter Code S: SIMPLE retirement account (408(p) plan)
Box 13:
- Enter a checkmark in the Retirement plan Box

FUTA Taxes (Federal Unemployment Tax Act)

Employer Contributions:

Employer contributions to an employee's SIMPLE IRA are NOT subject FUTA taxes.

Employee Salary Reduction Contributions:

Employee salary reduction contributions ARE subject to FUTA taxes.
FUTA taxes are strictly an employer-paid tax; you do not withhold FUTA taxes from an employee's gross wages.
The maximum amount subject to FUTA tax is the first $7,000 of gross wages paid to each employee.
- So, in the previous example, the employer would be liable for FUTA taxes on the first $7,000 of Jack's gross wages.

Self-Employed Persons:

Although a self-employed person is treated as both employer/employee for retirement plan purposes, a self-employed person is not treated as an employee for payroll tax purposes (i.e., a self-employed person does not receive Form W-2).
Self-employed income is reported on Schedule C (Schedule F for farming and Schedule E for partners).
A self-employed person deducts SIMPLE IRA contributions made for himself or herself on Form 1040, line 28.

SIMPLE Plans: Deducting Matching and Nonelective Contributions; Timing Deductions for Contributions

Retirement Plans

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