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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
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Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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Hi, I have a simple IRA plan for my employees. I use ADP to

Resolved Question:

Hi,
I have a simple IRA plan for my employees. I use ADP to process payroll.

ADP has instructions from me to reduce certain employee salaries by a percentage. For example: An employee with a $1000 per week salary and a 3% reduction will see his pay check with a $30 reduction. I will then pay the $30 from my payroll account into their IRA account.

At the end of the year I will match the employees’ contributions dollar for dollar up to 3% of the employees pay.


ADP has a new platform and they are calculating the salary reduction differently. The example above is real and ADP is now deducting $98.31 from the $1000 salary for private health insurance and then they are reducing the remainder by 3% which comes out to $27.05 instead of $30.

I called ADP twice and the first time they said that there was some new law that stated that Simple IRA contributions are calculated as a percentage of taxable gross and no longer from true gross. I could not verify this. Regardless, when it comes time to match, do I match dollar for dollar up to 3% of (salary-health insurance) or 3% of (salary)?? If I match 3% of salary, I would be more than matching which is a no no with the IRS and if I match less, the employee may say that I am jipping them by not matching a true 3% of salary.
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

NPVAdvisor :

Hi, Sorry I can't think of a way to wordsmith this for you but the dollar for dollar match has to be, as you mentioned, just that a match of what goes into the plan

NPVAdvisor :

I think I would say that you can only (and this is the truth), do a 100% match of the contribution

NPVAdvisor :

rather than expressing it as a percent of salary

NPVAdvisor :

What you're soing IS a true dollar for dollar match

NPVAdvisor :

"doing"

NPVAdvisor :

To say it differently, IRS is constraining what they can put in and you have to match that dollar for dollar

NPVAdvisor :

Here's the way the IRS actually puts it (from their SIMPL PLAN checklist):

NPVAdvisor :

Employers are required to make either a matching contribution (up to 3%) or a 2% fixed
(nonelective) contribution for each eligible employee. Prior to November 2, the beginning of the
60-day election period prior to each calendar year, the employer must notify employees which
contribution it will provide the next year.

NPVAdvisor :

Maybe this will be helpful:


SIMPLE IRA Plan Checklist - Internal Revenue Service

NPVAdvisor :

See about 1/2 of the way down on page 3

NPVAdvisor :

Hope this helps

NPVAdvisor :

Lane

NPVAdvisor :

(let me know if you have questions)

Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3654
Experience: Providing Financial & Tax advice since 1986
Lane and 11 other Tax Specialists are ready to help you
Expert:  Lane replied 10 months ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

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If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  Lane replied 10 months ago.


Hi Constantine,

... just checking back in, as I never saw you come back into the chat.

If you need more on this just come back here, but if you show them the IRS piece it states clearly, " ... required to make either a MATCHING contribution (UP TO 3%) ..."

Hope this helps

Lane
Expert:  taxmanrog replied 10 months ago.
Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

Thank you for asking for me. I am glad to see Lane tried to assist you. However, I don't think that your question has been answered. You asked which of the amounts was the number to match. Was it the salary? Or the salary minus the medical? And what was the authority that you could cite?

The definition of compensation for SIMPLE (and most other retirement plans) is found in Treasury Reg 1.415-2(d)(2). It states that "Medical or disability benefits as described in IRC §104(a)(3), 105(a) and 105(h), but ONLY TO THE EXTENT THAT THESE AMOUNTS ARE INCLUDED IN the gross income of the employee (Treas Reg. 1.415-2(d)(2)(iii). Gross Income is defined under IRC §3121, and specifically state that wages do NOT include income that would be excluded under a §125 plan (which is what a pre-tax medical plan is).

So, your answer is you match the SALARY OR WAGES MINUS the MEDICAL INSURANCE. Your match must be dollar for dollar. Your citations are above.

Thanks! I hope this answers your questions! If you have any more, please feel free to ask!

Thanks again!

Roger
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 373
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
taxmanrog and 11 other Tax Specialists are ready to help you

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