where do you deduct employers contribution for his employees sep-ira on tax return

[DABLANCH]

He is putting in max deposit as figured by tax software. he will have 2 employees to qualify for contributions. for a total of $8500 (25%of w2 income). where does that go on return

[Just-Lisa-Now-]

Sch C? or some other business entity?

[jeffmcpa2010]

I agree with Lisa, and I believe if his business is reported on the cash basis, possibly it is not deducted until the year it is paid.

[abctax55]

One has until the due date of the return, including any extensions, to make a deductible SEP contribution for the prior year. Even on the cash basis.

The deduction is claimed on the line for employee benefits/retirement contributions - the actual line depends on the entity claiming the deduction (Sch C = Pension & profit-sharing, line 19, Form 1120-S = Pension, profit sharing Line 17,....)

[DABLANCH]

when I use worksheet in basic it shows he has maximum deduction of 40.000 for sch c sole prop and takes 40.000 of as an adjustment to income. if I go and put the 8500 for 2 employees sch c pension line it completely changes the max amount for owner.AS IT ENTERS AS AND EXPENSE AGAINST INCOME need to find on the software to enter 8500 so it takes if off as adjustment. WHERE IS THAT ENTRY POINT TO MAKE THIS WORK

[sjrcpa]

The contribution for employees is correctly deducted on Schedule C. It will reduce the owner's earned income and therefore the maximum contribution for the owner. The contribution for the owner is deducted as an adjustment to income.

[qbteachmt]

"put the 8500 for 2 employees sch c pension line it completely changes the max amount for owner"

Of course it does.

Are you confusing a worksheet computation that is his own Contribution, with the amount he will be paying to the benefit of the Employees? These amounts go in different places.

The amounts on behalf of an employee are part of Business Expense as Retirement and Benefit package expense. That will create a Net Income for the employer, and as Sched C, that then creates the amount to be used to compute his own qualifying contribution. The owner's amount is computed differently.

For employees:

"Contributions an employer can make to an employee's SEP-IRA cannot exceed the lesser of:

1. 25% of the employee's compensation, or
2. $61,000 for 2022 ($58,000 for 2021 and $57,000 for 2020)

Note: Elective salary deferrals and catch-up contributions are not permitted in SEP plans."

For employer/owner:

"When a sole proprietor figures deductions for SEP contributions, the IRS notes that compensation equals net earnings from self-employment, which takes into account the deduction for one-half of self-employment tax as well as the deduction for contributions to the SEP-IRA."

[abctax55]

@DABLANCH  "WHERE IS THAT ENTRY POINT TO MAKE THIS WORK"

1) no need to yell 

2) there isn't an entry point to make it work as what the software is doing is correct.

(see Susan's succinct comment)

[Mary16]

Hello,

Thank you for providing the answer to a question that I also had.  The next part is: where are the employee elective salary deferrals entered?  If I enter them with Salaries and Wages (part of gross earnings) (Form 1120-S line 😎 then this total number won't match the company's W2 box 1. Any help is appreciated.  Thank you

[Accountant-Man]

The salaries deduction on the 1120S for wages goes off box 5, not box 1, of the W2. Employees' deferrals are part of their wages.

[Mary16]

Thank you for your reply, but box 5 is Medicare wages and tips which is the full earnings (gross wages including the elective IRA salary deferral) Box 1 is Wages which are total wages minus any IRA salary deferrals.  The difference between Box 1 and Box 5 is the amount that the employees put away in their IRA's.  This IRA amount is what is confusing me because I don't know where exactly it gets reported in the 1120-S form. The 1120-S instructions say that IRA salary deferrals are not part of line 8.  So where does it go?

on a different note, I've entered the company MATCH in line 17 of 1120-S form.

thank you again for any information 

[sjrcpa]

If you don't think the employee deferrals go on the wages line, then they go on the Pension/profit sharing line - the same as the employer match.

[Accountant-Man]

Where does the salary deferral come from? The employee's wages. 

Employee A receives 45,000 wages and choses to defer 5,000. Total wages are 45,000, but W2 box 1 is 40,000. 

Employee B receives 45,000 and chooses to defer zero.

Total company's wages are 90,000, not 85,000.

There is no pension expense here.

[Accountant-Man]

Do you mean 401k deferrals, or Simple IRA, since employees cannot contribute to IRA from wages?

[Accountant-Man]

But they're not pension contributions, they're deferral of WAGES.

[Mary16]

It’s a Simple IRA.

And yes they’re salary deferrals. 
Referring back to the $90,000 total wages report. One of the employees elected to defer $5,000. Thereby $85,000 will be reflected in Box 1 (wages) of W2.

I’ve been told that line 8 in form 1120S must match box 1 of the W2. So I’m trying to figure out where to enter the $5,000 earnings expense that ultimately turned into an employee’s Simple IRA salary deferral. I’m thinking of adding the $5,000 to line 17, where I’ve already entered the company matching contribution.

 Thank you 

[Accountant-Man]

I have to agree, although I never do it this way. According to the instructions for wages on the 1120S: "Don't include salaries and wages reported elsewhere on the return, such as amounts included in cost of goods sold, elective contributions to a section 401k cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or SIMPLE IRA plan."

The only other place remotely relatable would be the company's pension and/or profit sharing plan on line 17.

{FYI, line 8 of page 1 will never equal Box 1 of ALL wages IF there are some wages reported elsewhere, like COGS.}