is employee considered covered by employer plan?

[hgtc]

Client's employer has SEP plan.  However, company did not contribute SEP in tax year 2019.  

Is my client still considered "covered by employer plan" for tax year 2019?

Can my client qualified for IRA deduction without subject to income limitation for 2019?  (client's gross incomes are over income limitation if he is considered covered by employer plan.)

[Just-Lisa-Now-]

An employer paying into a SEP isnt considered being "covered by a retirement plan" for IRA contribution limits for the taxpayer.

Unless the W2 has the retirement box checked in Box 13, he should should be able to contribute to an IRA (assuming he meets all the other qualifications)...its too late for a 2019 IRA contribution though, so this may all be moot.

[sjrcpa · Accepted solution]

"An employer paying into a SEP isnt considered being "covered by a retirement plan" for IRA contribution limits for the taxpayer." If they make a contribution for you, you are covered.

Unless the W2 has the retirement box checked in Box 13, he should should be able to contribute to an IRA (assuming he meets all the other qualifications)...its too late for a 2019 IRA contribution though, so this may all be moot.  Agreed.

[Just-Lisa-Now-]

"If they make a contribution for you, you are covered."

Even if you don't have the option to pay into it as well?   

I thought it had to be a retirement plan that YOU could defer money into to be considered "covered".

[BobKamman]

You’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a:

• ...
   
• IRA-based plan (SEP, SARSEP or SIMPLE IRA plan) and you had an amount contributed to your IRA for the plan year that ends with or within the tax year

https://www.irs.gov/retirement-plans/are-you-covered-by-an-employers-retirement-plan#:~:text=You're%...

[Just-Lisa-Now-]

I stand corrected.

[abctax55]

BUT.... what does that W-2 say?  It may not be completed correctly.  

[BobKamman]

What if it's wrong?  I would not try to convince the employer that a corrected one should be filed.  They are just as likely to get it wrong again, and IRS is just as likely to think the income was twice as much as what was reported.  (If the correction gets to IRS in the first place -- does SSA know what to do with these?)

[hgtc]

Thank you all for your input.

W-2 is marked "covered", but, employer did not have SEP contribution for tax year 2019.  And, the employee did contribute his IRA, $7,000 by 4/15/2020.

Reading IRS note, it sounds that employer should not mark "covered" in the W-2. Lacerte will not allow this $7,000 IRA deduction.  Should my client ask employer to correct 2019 W-2 for this (if he still wants to have IRA deduction)?

[abctax55]

@BobKamman 

We can't decided if it's wrong, or right, until the OP discloses how it's marked. 

NOW, we know, because the OP has responded.

From first hand experience, if the retirement box IS marked even if incorrectly, the IRS will disallow the IRA contribution.  

The OP, and the OP's client, need to prepare for battle if the IRA deduction is claimed.  

I agree an amended W-2 could just muddle the water, and lord knows it won't be processed before the 10.15.20 deadline in any case.

[itonewbie]

I'd ask for the comp breakdown/payslips to make sure they tie with what's on the W-2.

[Edit: Didn't realized there's new info from the OP before posting this...]