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?
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.
“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).”
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.
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.
“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).”