Sole proprietorship SIMPLE with employees

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My husband is a sole proprietorship with two employees. We file a 1040 with a schedule C each year. Each paycheck, salary referrals are taken from the employees and submitted monthly with a 3% match for a simple IRA. For my husband to contribute, is it acceptable and correct to submit a 3% employer contribution of his schedule C profit by January 30 along with whatever personal amount up to the limits for that year?

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KrisD15Answer

Alumni - Intuit

Correct, the deposit needs to be made by January 30th.

The IRS uses the term "salary reduction" for a self-employed taxpayer making the election to participate in a Simple IRA Plan, although the sole proprietor is not an employee and does not receive a W-2.

According to the IRS:

“If you are a Schedule C filer (a sole proprietor) and have a SIMPLE IRA plan, you are treated as both an employer and an employee when calculating and reporting your own plan contributions and limits.”

“You may defer up to $15,500 in 2023, $14,000 in 2022, $13,500 in 2021 and in 2020 and $13,000 in 2019 (adjusted cost-of-living in later years). However, you may not exceed your net earnings from self-employment from the business sponsoring the SIMPLE IRA plan. If you are age 50 or over, you can make a catch-up contribution of up to $3,500 in 2023 ($3,000 in 2022, 2021, 2020 and 2019 adjusted for cost-of-living in later years).”

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DaveF1006

Alumni - Intuit

Yes, this is acceptable.

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I

Ilangrl68Author

Level 2

Thank you for your reply. My financial advisor maintains that I cannot do it that way because it’s not a salary reduction (as in withheld on a weekly or monthly paycheck.) Since my husband‘s business is set up as a sole proprietorship, I believe it is not even legal to issue him a paycheck and a W-2 as the income is reported on the schedule C and then on our 1040. I just wanted to make sure that he can participate in the simple IRA and the legal way to contribute. I wouldn’t know the 3% amount to match anyway, until after our taxes for the business are done on the schedule C.

KrisD15Answer

Alumni - Intuit

Correct, the deposit needs to be made by January 30th.

The IRS uses the term "salary reduction" for a self-employed taxpayer making the election to participate in a Simple IRA Plan, although the sole proprietor is not an employee and does not receive a W-2.

According to the IRS:

“If you are a Schedule C filer (a sole proprietor) and have a SIMPLE IRA plan, you are treated as both an employer and an employee when calculating and reporting your own plan contributions and limits.”

“You may defer up to $15,500 in 2023, $14,000 in 2022, $13,500 in 2021 and in 2020 and $13,000 in 2019 (adjusted cost-of-living in later years). However, you may not exceed your net earnings from self-employment from the business sponsoring the SIMPLE IRA plan. If you are age 50 or over, you can make a catch-up contribution of up to $3,500 in 2023 ($3,000 in 2022, 2021, 2020 and 2019 adjusted for cost-of-living in later years).”

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