If you are using QuickBooks 2014 (Windows and Mac) then you won’t be able to use certain services and features after May 31, 2017. While the basic program will work, any add-on features like payroll (any level will not be updated with current tax tables), ViewMyPaycheck, live tech support, Online Backup, and Online Banking will not.
SIMPLE IRA Plan FAQs – Contributions
What types of contributions may be made to a SIMPLE IRA plan?
Each eligible employee may make a salary reduction contribution and the employer must make either a:
- matching contribution or
- nonelective contribution.
No other contributions may be made under a SIMPLE IRA plan.
Can contributions made under a SIMPLE IRA plan be made to any type of IRA?
Contributions under a SIMPLE IRA plan may only be made to a SIMPLE IRA, not to any other type of IRA.
What is a salary reduction contribution?
A salary reduction contribution is an amount an employee elects to have contributed to his or her SIMPLE IRA, rather than paid in cash. Employers must permit their employees to elect to have salary reduction contributions made at an employee-specified level, expressed as a percentage of compensation for the year or as a specific dollar amount. An employer may not place any restrictions on the amount of an employee’s salary reduction contributions, except to comply with the annual limit on salary reduction contributions.
How much may an employee defer under a SIMPLE IRA plan?
An employee may defer up to $12,500 in 2015 and 2016 (subject to cost-of-living adjustments for later years). Employees age 50 or over can make a catch-up contribution of up to $3,000 in 2015 and 2016 (subject to cost-of-living adjustments for later years). The salary reduction contributions under a SIMPLE IRA plan are “elective deferrals” that count toward the overall annual limit on elective deferrals an employee may make to this and other plans permitting elective deferrals.
How much must I contribute for my employees participating in our SIMPLE IRA plan?
You’re generally required to either:
match each employee’s salary reduction contribution on a dollar-for-dollar basis up to 3% of the employee’s compensation (not limited by the annual compensation limit), or
make nonelective contributions of 2% of the employee’s compensation up to the annual limit of $265,000 for 2015 and 2016, subject to cost-of-living adjustments in later years. If you choose to make nonelective contributions, you must make them for all eligible employees whether or not they make salary reduction contributions.
Can I reduce the 3-percent matching contribution?
You may elect to reduce the 3-percent matching contributions for a calendar year, but only if:
The limit isn’t reduced below 1 percent;
The limit isn’t reduced for more than 2 years out of the 5-year period that ends with (and includes) the year for which the election is effective; and
You notify employees of the reduced limit within a reasonable time before the 60-day election period during which employees can enter into salary reduction agreements.
To determine if the limit was reduced below 3 percent for a year, any year before the first year in which you (or a predecessor employer) maintain a SIMPLE IRA plan will be treated as a year for which the limit was 3 percent. If you choose to make nonelective contributions for a year, that year also will be treated as a year for which the limit was 3 percent.
Can I suspend, reduce or increase the amount of matching contributions to our SIMPLE IRA plan in the middle of the year?
You cannot suspend or modify your employer matching contributions mid-year. You must make the contributions that you promised your employees in the SIMPLE IRA plan notice.
May I make nonelective contributions instead of matching contributions?
As an alternative to making matching contributions under a SIMPLE IRA plan, you may make nonelective contributions equal to 2 percent of each eligible employee’s compensation for the entire calendar year. You must make the nonelective contributions for each eligible employee regardless of whether the employee elects to make salary reduction contributions for the calendar year. You may, but aren’t required to, limit nonelective contributions to eligible employees who have at least $5,000 (or some lower amount selected by the employer) of compensation for the year.
You may substitute the 2-percent nonelective contribution for the matching contribution for a year, only if:
You notify eligible employees that a 2-percent nonelective contribution will be made instead of a matching contribution; and
This notice is provided within a reasonable time before the 60-day election period during which employees can enter into salary reduction agreements.
Do compensation limits apply when calculating the 2-percent nonelective contribution?
For purposes of the 2-percent nonelective contribution, the compensation taken into account must be limited to $265,000 for 2015 and 2016, subject to cost-of-living adjustments in later years).
Do I have to contribute for a participant who isn’t employed on the last day of the year?
Yes, you do. A SIMPLE IRA plan cannot have a last-day-of-the-year employment requirement. If the employee is otherwise eligible, they must share in any SIMPLE IRA contribution. This includes eligible employees who die or quit working before the contribution is made.
If an employee starts or stops salary reduction contributions in the middle of the year, can I make my 3% match based only on the compensation earned during the period they actually contributed?
No, you must base your SIMPLE IRA plan employer matching contribution on the employee’s entire calendar-year compensation, regardless of when the employee starts or stops contributing during the year. The maximum matching contribution is always 3% of the employees’ compensation for the entire calendar year. Matching contributions may be made on a per-pay-period basis, or by the due date of the employer’s tax return (including extensions).
Example: Bob’s annual salary is $50,000 and he starts contributing to his employer’s SIMPLE IRA plan on September 1. He contributes $1,536 through December 31. Bob’s employer must match Bob’s contributions up to 3% of Bob’s calendar-year compensation, or $1,500 (3% of $50,000). It doesn’t matter that Bob only contributed to the plan during the last 4 months of the calendar year.
Example: John earns $60,000 a year. He made a salary reduction contribution of $12,000 to his employer’s SIMPLE IRA plan from January 1 to September 30. John’s employer is required to match John’s contribution up to 3% of his entire calendar-year compensation or $1,800 (3% of $60,000), even though John stopped contributing to the plan on September 30.
Example: Joe’s annual salary is $70,000 and he contributed 1% of his compensation, or $700, to his employer’s SIMPLE IRA plan. Joe’s employer must make a matching contribution of $700 because the employer is only required to match the amount Joe actually contributes during the year up to a maximum of 3% of his calendar-year compensation.
Can I contribute to a SIMPLE IRA of a participant over age 70 ½?
Yes, you must. Employees who are age 70 ½ or over may make salary deferral contributions to their SIMPLE IRAs. Employers must continue to make matching or nonelective contributions to employees’ SIMPLE IRAs even after an employee reaches age 70 ½. However, an employee who is age 70 ½ must also begin to take required minimum distributions from the account.
Employees may not be excluded from participating in a SIMPLE IRA plan based solely on their age.
What happens if I don’t make the matching or non-elective 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 contributions, can result in the loss of favorable tax benefits for you and the participants. You can correct certain SIMPLE IRA plan failures. For additional information, review our SIMPLE IRA Plan Fix-It Guide and visit Correcting Plan Errors.
Depositing and deducting contributions
When must I deposit the salary reduction contributions?
You must deposit employees’ salary reduction contributions to their SIMPLE IRAs within 30 days after the end of the month in which the amounts would otherwise have been payable to the employees in cash, according to IRS rules (IRC section 408(p)(5)(A)(i)). For self-employed persons with no common-law employees, the latest date for depositing salary reduction contributions for a calendar year is 30 days after the end of the year, or January 30th.
The Department of Labor rule for deposit of the salary reduction contributions may be stricter. They do have a 7 business day safe harbor rule.
When must I make the matching and nonelective contributions?
You must make matching and nonelective contributions to the financial institution maintaining the SIMPLE IRA no later than the due date for filing your business’s income tax return, including extensions, for the taxable year that includes the last day of the calendar year for which you made the contributions. If you extend your tax return, then you have until the end of that extension period to deposit contributions, regardless of when you file the tax return. However, if you did not deposit the contribution timely, you must amend the tax return and pay any tax, interest and penalties that may apply.
How much of the contributions made to employees’ SIMPLE IRAs may I deduct on my business’s tax return?
You may deduct all contributions made to your employees’ SIMPLE IRAs on your tax return.
Can employees deduct the salary reduction contributions they make to the SIMPLE IRA plan on their Form 1040?
No, employee contributions to a SIMPLE IRA plan are not deductible by participants from their income on their Form 1040. Employee salary reduction contributions to a SIMPLE IRA are not included in the “Wages, tips, other compensation” box of Form W-2, Wage and Tax Statement, and are not reported as income on your Form 1040.
If you are a sole proprietor or partner, however, you would deduct your own salary reduction contributions and your own matching or nonelective contributions on Form 1040, line 28.
If my SIMPLE IRA plan fails to meet the SIMPLE IRA plan requirements, are the tax benefits for me and my employees lost?
Generally, tax benefits are lost if the SIMPLE IRA plan fails to satisfy the Internal Revenue Code requirements. However, you may be able to retain the tax benefits if you use one of the IRS correction programs to correct a failure. In general, when correcting a failure under the program, the correction should put employees in the position they would have been had the failure not occurred.
Reporting and notification requirements
What is the SIMPLE IRA employee notification requirement?
Prior to the employees’ 60-day election period (which generally begins on November 2nd prior to each calendar year), you must provide to each eligible employee:
Details concerning the employee’s opportunity to make or change a salary reduction;
Your decision to make either a matching or nonelective contribution; and
A summary description (that the financial institution where the SIMPLE IRAs are maintained usually provides).
See IRS Publication 560 and the Instructions to Form 5305-SIMPLE and Form 5304-SIMPLE for information on the notification requirement.
Why is last year’s SIMPLE IRA contribution that was made this year shown on this year’s Form 5498 instead of last year’s Form 5498?
The IRS requires that contributions to a SIMPLE IRA be reported on the Form 5498 for the year they are actually deposited to the account, regardless of the year for which they’re made.
I came across Simon Sinek’s 2009 TED Talk a couple of years ago, and it’s really impacted my thinking. I’ve always loved the question, ‘why?’, and I’ve been asking it all my life. Why does a piece of technology work the way that it does? Why did a person do something instead of something else? I ask it in both controversial and non-controversial situations. I like to know why. I think this is a powerful question. It helps clarify situations, and can reset outcomes to be more successful. I think it’s a question people should be asking more.
Unfortunately, I’ve learned over the years that this question often upsets people. It isn’t often a socially acceptable question. People can feel put on the spot when asked why. Why is that? Well, the question of ‘why?’ turns out to be very personal one, since it gets to the very motivation of one’s intention, or lack thereof. People can often feel a bit foolish if they don’t have a good reason why they did or said something. In other instances, people immediately assume it’s not a question at all, but a statement of assigning blame or fault. Since the question causes misunderstanding and conflict, I asked it less.
When I heard Simon Sinek’s (now viral) 2009 TEDx Pugent Sound talk, “How great leaders inspire action”, it gave me new perspective to ask ‘why?’. Sinek says that all of the great inspiring leaders and organizations in the world, whether it’s Apple, Martin Luther King, or the Wright brothers, they all think, act, and communicate the exact same way, and it’s the complete opposite to everyone else. Sinek codified it, and named it the Golden Circle.
The Golden Circle is three co-centric circles, with the inner circle being: Why?, the middle circle: How?, and the outer circle: What?. Listen to his TEDx talk to learn how he explains his idea of why some organizations and some leaders are able to inspire, where others aren’t.
I’ve been inspired by Simon Sinek’s talks, which you can find on YouTube. I subscribe to his belief that we must start with ‘why’. And, the ‘how’ and the ‘what’ should be an extension of the ‘why’. I’ve been applying his sage words to myself and my business, asking myself, ‘why do I exist?’ and ‘why does my company exist?’.
To develop a really clear and concise ‘why’ statement is harder than it seems.
Actually, my personal why statement was established many years ago, “To love God and others so that I’m able to make disciples”.
The business ‘why’ statement I’m finding to be a more iterative process of defining who our target market is. Currently, our ‘why’ statement is “To help entrepreneurs build great businesses so that their lives will be improved”. I like this ‘why’ statement because I see a connection between business owners whose businesses are struggling and their lives are too. I believe that I can help entrepreneurs build not just good businesses, but great businesses. I believe building a great business is much more than making a financially successful enterprise, it involves the personal growth and character development of the owner(s).
My personal why statement, and that of the business are consistent and compatible with one another…to care about and to help others. This is an important finding, because if they weren’t compatible, then there would be no harmony or lasting success. There’s a lot incompatibility between the ‘whys’ of businesses and their owners that account for troubling discord in their lives, within their families, and those that they employ.
The more clarity the ‘why’ statements contain, the easier it becomes to filter out the decisions of ‘how’ and ‘what’ that don’t fit with the ‘why’, whether in our personal lives, or that of our companies. A narrower focus produces a less complicated decision-making. I hope this inspires you to think more about your ‘why’. Watch Simon Sinek’s video below.
S Corporation Compensation and Medical Insurance Issues
When computing compensation for employees and shareholders, S corporations may run into a variety of issues. The information below may help to clarify some of these concerns.
S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.
The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.”
Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense which are subject to employment taxes.
|Authority to Reclassify||Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000)|
|Reinforced Employment Status of Shareholders||Veterinary Surgical Consultants, P.C. vs. Commissioner, 117 T.C. 141 (2001)
Joseph M. Grey Public Accountant, P.C. vs. Commissioner, 119 T.C. 121 (2002)
|Reasonable Reimbursement for Services Performed||David E. Watson, PC vs. U.S., 668 F.3d 1008 (8th Cir. 2012)|
The key to establishing reasonable compensation is determining what the shareholder-employee did for the S corporation. As such, we need to look to the source of the S corporation’s gross receipts.
The three major sources are:
- Services of shareholder,
- Services of non-shareholder employees, or
- Capital and equipment.
If the gross receipts and profits come from items 2 and 3, then that should not be associated with the shareholder-employee’s personal services and it is reasonable that the shareholder would receive distributions along with compensations.
On the other hand, if most of the gross receipts and profits are associated with the shareholder’s personal services, then most of the profit distribution should be allocated as compensation.
In addition to the shareholder-employee direct generation of gross receipts, the shareholder-employee should also be compensated for administrative work performed for the other income producing employees or assets. For example, a manager may not directly produce gross receipts, but he assists the other employees or assets which are producing the day-to-day gross receipts.
Some factors in determining reasonable compensation:
- Training and experience
- Duties and responsibilities
- Time and effort devoted to the business
- Dividend history
- Payments to non-shareholder employees
- Timing and manner of paying bonuses to key people
- What comparable businesses pay for similar services
- Compensation agreements
- The use of a formula to determine compensation
Treating Medical Insurance Premiums as Wages
Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee’s Form W-2, subject to income tax withholding.
However, these additional wages are not subject to Social Security, or Medicare (FICA), or Unemployment (FUTA) taxes if the payments of premiums are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees (or employees and their dependents). Therefore, the additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2.
A 2-percent shareholder-employee is eligible for an above-the-line deduction in arriving at Adjusted Gross Income (AGI) for amounts paid during the year for medical care premiums if the medical care coverage was established by the S corporation and the shareholder met the other self-employed medical insurance deduction requirements. If, however, the shareholder or the shareholder’s spouse was eligible to participate in any subsidized health care plan, then the shareholder is not entitled to the above-the-line deduction. IRC § 162(l).
Health Insurance Purchased in Name of Shareholder
The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name.
The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance.
Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction.
The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2.
The Affordable Care Act (ACA) did not change the above rules regarding the federal tax treatment of health and accident premiums paid for a 2% shareholder.
However, for tax years after 2013, the ACA imposes penalties on the S corporation if the S corporation offers a health plan that fails to comply with certain market reform provisions, which may include plans under which the S corporation reimburses employees for the cost of individual health insurance premiums. The potential excise tax is $100 per day, per employee, per violation.
Among the ACA market reform provisions is a requirement that a group health plan must not impose annual limits on essential health benefits. In Notice 2013-54, the IRS indicated that a health plan under which an employer reimburses employees for the cost of individual health insurance premiums (referred to as an “employer payment plan”) will generally be treated as failing this requirement because the employer payment plan is treated as imposing a limit up to the cost of the individual policy premium.
The excise tax for failure to satisfy the ACA market reforms generally will not be imposed on an S corporation in the following two situations:
- The S corporation provides medical benefits under a health plan that satisfies the ACA market reform requirements(for example, a group health plan that does not provide for reimbursement of individual policy premiums); or
- No more than one active employee participates in the employer payment plan under which the S corporation reimburses the cost of individual policy premiums.
The ACA market reform provisions do not apply to plans that cover fewer than two participants who are active employees. IRC § 9831(a)(2).
Notice 2015-17 Transition Relief
On February 18, 2015, the IRS issued Notice 2015-17, which provides transition relief for S corporations that sponsor employer payment plans covering 2-percent shareholders.
Notice 2015-17 provides that, unless and until additional guidance provides otherwise, S corporations and shareholders may continue to rely on Notice 2008-1 with regard to the tax treatment of 2-percent shareholder-employee and their healthcare arrangements for all federal income and employment tax purposes. The Department of Labor and the IRS are contemplating publication of additional guidance on the application of the market reforms to a 2-percent shareholder-employee healthcare arrangement.
Until such guidance is issued, the excise tax under IRC § 4980D will not be asserted for any failure to satisfy the market reforms by a 2-percent shareholder-employee healthcare arrangement.
Further, unless and until additional guidance provides otherwise, an S corporation with a 2-percent shareholder-employee healthcare arrangement will not be required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans under chapter 100 of the Code, including the market reforms) solely as a result of having a 2-percent shareholder-employee healthcare arrangement.
Note: To the extent that a 2-percent shareholder is allowed both the above-the-line deduction and the premium tax credit, Rev. Proc. 2014-41 provides guidance on computing the deduction and the credit.
Fewer Than Two Participants Who Are Current Employees Exception
As discussed above, market reforms do not apply to plans that cover fewer than two active employees. Notice 2015-17 explains that if the S corporation employs more than one employee, where the additional employee is a spouse or child of the shareholder and all employees are covered under a reimbursement arrangement with family coverage under the same plan, the arrangement would be considered to only cover one employee and would not be subject to the market reforms. As such, an S corporation with only family employees covered by the same plan may continue to reimburse for a family plan and fall under the “fewer than two participants who are current employees” exception to the market reforms.
With respect to coverage of employees who are not 2-percent shareholders, Notice 2015-17 explains that if an S corporation maintains more than one reimbursement arrangement covering both 2-percent shareholder-employees and non-2-percent shareholder-employees, the arrangements would be considered a group health plan and would not be exempted under the “fewer than two participants who are current employees” exception to the market reforms. Such a plan would generally fail to satisfy the ACA market reform requirements and thus may trigger the excise tax under IRC § 4980D with respect to the non-2-percent shareholder employees. However, Q&A-1 of Notice 2015-17 provides that no penalties under § 4980D will be assessed under such an arrangement until at least June 30, 2015.
This is a known error in QuickBooks, so a fix should be out shortly, so this may or may not apply to you.
The Billable Expenses error happens when trying to add Additional Billable Expenses to an Existing Invoice. There is no problem adding to a new invoice.
Here are two work-arounds until Intuit fixes the issue.
- If the invoice has no existing billable expenses: Make a copy (from the More menu at the bottom) of the original invoice, then add the billable expenses, and delete the original invoice.
- If the invoice has existing billable expenses: Delete one of the invoice line items that represents a billable expense, confirm the deletion and unlinking of that expense from the invoice, now all the unbilled expenses will appear in the Add to Invoice side bar for you to select and add to the invoice.
Thanks to Intuitive Accountant contributing author Liz Scott for those tips.
QuickBooks 2017 is scheduled to be released 9/19/16. This version is mostly refinement of existing features, little things that make it more user friendly for day to day users. Depending on your usage, your mileage will vary on the enhancements.
For those that use QuickBooks in multi-user mode, you will be delighted that some functionalities that used to only be able to be performed in single user mode can now be performed in multi-user mode: Pay Bills, Creating Invoices from Estimates, Creating Bills from Purchase Orders, Printing Checks and Scanning Checks.
Switching from multi-user mode to single-user mode has been enhanced for administrators. A dialog presents displaying users currently logged in and allows the Admin to send a request to those users to log out with in a selectable duration, as well as to select time for how long the admin plans to be in single-user mode.
Enhancements to reports include filtering, such as selecting multiple GL account, and amount range, the ability to display filters applied to reports on a bar at the top of the report, missing user names (due to user deletion) now show on the Audit Trail (I think now that users cannot be deleted, instead be inactivated, but that implementation is not clear yet).
A new feature for reports is “Scheduled Reports. As the name suggests, it’s purpose is to automate the sending of reports. You have to be an Admin to set-up, and the reports will run at the scheduled date and time even if QB is closed on your computer (your computer must be on, not hibernated or asleep, and connected to the internet). There are other details about how it works such as if you do have a company file open at the time the reports are scheduled to be sent, it must be that same company file. If you have more than one company file that has scheduled reports, all companies should be closed. You cannot use the QuickBooks email service, but Outlook (must be open) or the webmail (must have password saved) does work.
There are other technical requirements. The limitation of only being able to have one 2017 edition of QuickBooks (Pro, Premier, or Enterprise) installed on your computer will make this impractical for most accountants to use.
There’s a new option for sending an invoice within QuickBooks Online (QBO), named “Share Invoice Link“.
This function was created to help those users whose invoices ended up in their customers’ spam due to the email being sent through Intuit’s servers instead of their own.
With the “Share Invoice Link” function, you can grab a link that you can paste into your own email to send to your customer. When the customer clicks the link, the the invoice will appear the same as if it were sent through Intuit’s server.
Since this is done one at a time, it is a manual process, and you will have to type in your own subject and message, and of course paste the link into the message area.
You can use the “Share Invoice Link” function either of these two access points within QBO:
1. Viewing an Invoice: Click the down arrow on the button named either “Save and Close” or “Save and Send”, and you should see an option for “Save and Share Link”. Then select “Copy and Close”. Finally, paste the link inside of your email.
2. Viewing the Sales Transaction list (ie from Customers): Click the down arrow at the right of the desired transaction row. Select “Share Invoice Link” then Click Copy and Close . Paste link inside of your email.
QuickBooks Online (QBO) will be down for maintenance on 6/11/2016 between 9pm and 10pm PT
The new overtime final rule will become effective on December 1, 2016, giving employers more than six months to prepare. The final rule does not make any changes to the duties test for executive, administrative and professional employees, but does:
- Raise the salary threshold indicating eligibility from $455/week to $913 ($47,476 per year), ensuring protections to 4.2 million workers.
- Automatically update the salary threshold every three years, based on wage growth over time, increasing predictability.
- Strengthen overtime protections for salaried workers already entitled to overtime.
- Provide greater clarity for workers and employers.
Cited from: https://www.dol.gov/featured/overtime
Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA):