Advanced Underwriting Consultants

Question of the Day – October 30

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question:  What are the penalties to an employer for failure to make required contributions to employees’ SIMPLE plan accounts?

Answer:  Here’s an excerpt from the IRS website describing the deadline for making employer contributions to an employee’s SIMPLE IRA account:

When must an employer make matching and nonelective contributions under a SIMPLE IRA plan?

Matching and nonelective employer contributions must be made to the financial institution maintaining the SIMPLE IRA no later than the due date for filing the employer’s income tax return, including extensions, for the taxable year that includes the last day of the calendar year for which the contributions are made.  Note: If the employer extends the tax return, then the employer will have until the end of that extension period to deposit contributions, regardless of when he or she filed the tax return. However, if the employer did not deposit the contribution timely, the employer must amend the tax return and pay any tax, interest and penalties that may apply.

Here’s a link to an online discussion that talks about the consequences of an employer failing to make timely deposits of SIMPLE IRA employer contributions:

Here’s one more warning from the IRS:

What happens if I don’t make the matching contribution to the SIMPLE IRA plan?

A SIMPLE IRA plan must satisfy certain rules to obtain favorable tax benefits. Failure to satisfy these rules, for example, by not making required matching contributions, can result in the loss of favorable tax benefits for the employer and all participants.

An employer can, however, correct certain SIMPLE IRA plan failures under the IRS’s Employee Plans Compliance Resolution System (EPCRS). For additional information, review our SIMPLE IRA Plan Fix-It Guide and visit the Correcting Plan Errors Web page.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.