I'm an S Corp owner wanting to report a SEP IRA contribution. The "Self-Employed Retirement Plans" page's continue btn only returns me to summary. What am I missing?

[dmertz · Accepted solution]

Except for the purpose of a self-employed health insurance deduction, you are not self-employed, you are an employee of your S-corp.  Unless you have a SARSEP plan established before 1997, SEP contributions are employer contributions only.  The contribution to your SEP IRA must be made by the S corp and is deductible on the S corp's tax return, not your individual tax return.  The maximum your S corp can contribute to your SEP IRA is 25% of your W-2 compensation.

Since you are not self-employed, you do not need to be using TurboTax Self Employed.  TurboTax Premier is sufficient.

[ben11]

Thanks, dmertz! That's the answer I was looking for. I get it now that I needed to claim the contribution on my company's corporate return 1120S instead of my individual 1040. Perhaps Turbo Tax could add the info in there in for folks who have added a K-1, but no Schedule C. Perhaps it's too much of a niche case. Also thanks for the tip about Self Employed vs Premier!

[dmertz]

It's probably beyond the scope of tax return preparation software to provide instruction on the operating procedures of an S corp.

[Anastasia-CPA]

When you say 25% of W-2 compensation, should it be box 1 (Fed wages) or box 5 (Medicare wages) My box 1 is higher because the corp. paid health insurance for the officer and therefore those payments were added to box 1 (with box 14 detailing the health ins payments). Are those payments qualify for purpose of calculating max SEP as part of compensation ?

[JohnB5677]

The IRS says: "SEP plans (that are not SARSEPs) only allow employer contributions. For a self-employed individual, contributions are limited to 25% of your net earnings from self-employment." 

Net income is your take-home pay after taxes and other payroll deductions.

Wage earners can estimate net annual income by subtracting federal, state and local taxes paid year-to-date from the gross income earned year-to-date. This number is net income year-to-date. 

[jeffwill]

Anastasia,

You can use box 1 for purposes of calculating a SEP contribution (even if it includes >2% shareholder health insurance premiums.  Check out page 4 of Pub 560 under the definition of "compensation" - column 2  https://www.irs.gov/pub/irs-pdf/p560.pdf

Every little bit helps!

Jeff

[Anastasia-CPA]

Thank you Jeff ! very helpful !

[Samkhatri]

Do I open a sep ira on my company's name as an employer business owner a corporation, or do I open it on my own name ? And how do I report it on my s corporation taxes...

Thanks

[DaveF1006]

If you are a S-Corp owner, you will need to first establish the Sep with the IRS under your company's name. Please read this IRS link carefully on how to set up the SEP with the IRS. This must be done before you start making contributions for yourself or other shareholders.

Then when you prepare your 1120S return in Turbo Tax Business, you will prepare it in Federal Taxes>deductions>compensation and benefits>Retirement plans contributions. Here you will enter shareholder contributions. 

[flpc1981]

When you say 25% of my W2, as a business owner with payroll, I also get paid with my business profits in my Schedule K-1, will that count as income to increase the limit for my contribution?

[Critter-3]

Except for the purpose of a self-employed health insurance deduction, you are not self-employed, you are an employee of your S-corp.  Unless you have a SARSEP plan established before 1997, SEP contributions are employer contributions only.  The contribution to your SEP IRA must be made by the S corp and is deductible on the S corp's tax return, not your individual tax return.  The maximum your S corp can contribute to your SEP IRA is 25% of your W-2 compensation and is reported on the W-2 box 12 so you don't enter it again in the program.  

[IHaveABigQuestion]

On the IRS link someone posted above, it says "net earnings... don’t include income passed
through to shareholders of S corporations" and I know I read on the IRS site somewhere else that distributions do not count. So the answer to your question is unfortunately no. I do wish TurboTax had more information like this that pertains to S Corp owners!

[IHaveABigQuestion]

I read that SEP-IRA contributions are not subject to:

• Federal income taxes, or
• Social security and Medicare taxes
• FUTA tax

Does this mean I subtract the amount of the SEP IRA contribution from taxable wages on Form 941 and 940? So that would mean at the end of the year box 1 stays the same on the W-2 but box 3 & 5 end up being lower because of SEP IRA contribution? 

[GeorgeM777]

No, you would not subtract the amount from taxable wages on Forms 941, and 940.  If you are an LLC member and your company has made an election to be treated for tax purposes as an S Corp, SEP contributions can be deducted on Form 1120S.  This means you will be treated the same as any other employee. When an employer contributes to an employee's SEP-IRA account, the contribution can be deducted as a business expense on the appropriate form.

Unlike some other retirement plans, a SEP IRA allows only the employer to contribute.  And whatever percentage of compensation employers set aside in the plan for themselves is the same percentage of pay they must contribute for each eligible employee.

For 2021, a self-employed business owner effectively can contribute as much as 25% of his or her net income in a SEP IRA, not to exceed the maximum contribution limit of $58,000.  In comparison, a traditional IRA limits contributions to $6,000 for 2021 for those younger than 50, or $7,000 for those 50 or older.

To be eligible to participate in an employer's SEP IRA, employees must be at least 21 years old, have worked at the business for three of the past five years and have earned at least $650 from the job in 2021.

@IHaveABigQuestion