Discussion:Self-employment tax; SIMPLE IRA

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Discussion Forum Index --> Consumer Questions --> Self-employment tax; SIMPLE IRA

Dave7 (talk|edits) said:

26 July 2006
I am a partnership in a partnership. My income from the partnership is reported as self-employment income. The partnership maintains a SIMPLE IRA. I make elective deferral contributions to the SIMPLE IRA. Such contributions clearly are subject to self-employment tax.

The partnership also makes non-elective contributions to the SIMPLE IRA in the amount of 2% of my net earnings from self-employment.

How are the partnership's non-elective contributions to my SIMPLE IRA reported for tax purposes? Do such contributions constitute self-employment income to me that is subject to self-employment taxes?

JR1 (talk|edits) said:

July 26, 2006
No, Dave, the company's match is not subject to SE taxes, merely shown as pension/profit sharing contribution...that's a little help, huh?

Dave7 (talk|edits) said:

26 July 2006
This is not clear to me. The Instructions for Form 1065, Line 18 (Deductions for Retirement Plans) state, "Do not deduct payments for partners to retirement or deferred compensation plans including ... SIMPLE IRA plans on this line. These amounts are reported on Schedule K-1, box 13, using code R, and are deducted by the partners on their own returns." In contrast, the Instructions state that such contributions by the partnership for an employee are deducted on line 18. Thus, for income tax purposes, these contributions apparently are deducted at the partnership level in the case of an employee and are deducted at the individual level in the case of a partner.

That much is fine. But I can't find anything indicating that such contributions for a partner would not be subject to self-employment tax. Specifically, the Instructions and the Worksheet for Figuring Net Earnings from Self-Employment for Form 1065 give no indication that such contributions would be deducted in computing self-employment income.

Matching and nonelective contributions by the partnership to the SIMPLE IRA plan of an employee clearly would not be subject to Social Security or Medicare taxes. Thus, logic would dictate that such contributions for a partner would not be subject to self-employment tax. However, I can not find anything in the tax form insructions or other authority affirming this.

WesR (talk|edits) said:

27 July 2006
Hi disagree with JR agree with Dave. The partnerships simple/IRA contributions are not deductible by the partnership on behalf of the partner. Partnership contributions for employees are deductible for S/E tax purposes as an ordinary expense by the partnership. The partners contributions are a separatley stated item for the partners which the partner deducts on his 1040 from gross income. The partners piece is NOT deductible for S/E tax purposes for the partner (that's why you cannot find anything). bye

Dave7 (talk|edits) said:

8 August 2006
Thanks, Wes. I am afraid you are right. The result does not seem fair. SIMPLE IRA matching contributions by the partnership for a non-partner employee are not subject to Social Security or Medicare taxes (by either the partnership or the employee). But matching contributions by the partnership for a partner apparently are subject to self-employment taxes. One more example of how the self-employed are treated inequitably under the tax laws.

Shellyb (talk|edits) said:

13 February 2008
Is the simple IRA elective deferral and employer 3% contribution elective deferral reported on Schedule K-1 line 13 code Q?

Umk395 (talk|edits) said:

31 January 2014
As best as I can tell, the elective deferral by the partner is reported on Schedule K-1, line 13 with "R" code.

As for the matching contribution for the PARTNER, I believe that computation is made directly on the Form 1040, line 28 because it is based on the partner's self-employment income, less 1/2 the S/E tax, etc.

Can anyone confirm that?? I have the same question. I believe the MATCHING portion of the PARTNER'S SIMPLE Plan contribution is calculated and reported directly on Form 1040, line 28 and is NOT reported on the partner's Schedule K-1, line 13 with an "R" code.

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