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Freetaxusa 2012

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Freetaxusa 2012

Freetaxusa 2012 3. Freetaxusa 2012   Environmental Taxes Table of Contents Oil Spill Liability Tax ODCs Imported Taxable Products Floor Stocks Tax Environmental taxes are imposed on crude oil and petroleum products (oil spill liability), the sale or use of ozone-depleting chemicals (ODCs), and imported products containing or manufactured with ODCs. Freetaxusa 2012 In addition, a floor stocks tax is imposed on ODCs held on January 1 by any person (other than the manufacturer or importer of the ODCs) for sale or for use in further manufacture. Freetaxusa 2012 Figure the environmental tax on Form 6627. Freetaxusa 2012 Enter the tax on the appropriate lines of Form 720 and attach Form 6627 to Form 720. Freetaxusa 2012 For environmental tax purposes, United States includes the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, any possession of the United States, the Commonwealth of the Northern Mariana Islands, the Trust Territory of the Pacific Islands, the continental shelf areas (applying the principles of section 638), and foreign trade zones. Freetaxusa 2012 No one is exempt from the environmental taxes, including the federal government, state and local governments, Indian tribal governments, and nonprofit educational organizations. Freetaxusa 2012 Oil Spill Liability Tax The oil spill liability tax is reported on Form 6627, Environmental Taxes, and Form 720, Quarterly Federal Excise Tax Return (IRS Nos. Freetaxusa 2012 18 and 21). Freetaxusa 2012 The oil spill liability tax rate is $. Freetaxusa 2012 08 per barrel and generally applies to crude oil received at a U. Freetaxusa 2012 S. Freetaxusa 2012 refinery and to petroleum products entered into the United States for consumption, use, or warehousing. Freetaxusa 2012 The tax also applies to certain uses and the exportation of domestic crude oil. Freetaxusa 2012 Crude oil includes crude oil condensates and natural gasoline. Freetaxusa 2012 Petroleum products include crude oil, refined and residual oil, and other liquid hydrocarbon refinery products. Freetaxusa 2012 Crude oil. Freetaxusa 2012   Tax is imposed on crude oil when it is received at a United Sates refinery. Freetaxusa 2012 The operator of the refinery is liable for the tax. Freetaxusa 2012   Tax is imposed on domestic crude oil used or exported before it is received at a United States refinery. Freetaxusa 2012 However, the use of crude oil for extracting oil or natural gas on the premises where such crude oil was produced is not taxable. Freetaxusa 2012 The user or exporter is liable for the tax. Freetaxusa 2012 Imported petroleum products. Freetaxusa 2012   Tax is imposed on petroleum products when they enter the United States for consumption, use, or warehousing. Freetaxusa 2012 The person entering the petroleum product into the country is liable for the tax, including the tax on imported crude oil, even if it is subsequently received at a U. Freetaxusa 2012 S. Freetaxusa 2012 refinery. Freetaxusa 2012   Tax is imposed only once on any imported petroleum product. Freetaxusa 2012 Thus, the operator of a U. Freetaxusa 2012 S. Freetaxusa 2012 refinery that receives imported crude oil must establish that the petroleum tax has already been imposed on such crude oil in order not to be liable for the tax. Freetaxusa 2012 ODCs For a list of the taxable ODCs and tax rates, see the Form 6627 instructions. Freetaxusa 2012 Taxable event. Freetaxusa 2012   Tax is imposed on an ODC when it is first used or sold by its manufacturer or importer. Freetaxusa 2012 The manufacturer or importer is liable for the tax. Freetaxusa 2012 Use of ODCs. Freetaxusa 2012   You use an ODC if you put it into service in a trade or business or for the production of income. Freetaxusa 2012 Also, an ODC is used if you use it in the making of an article, including incorporation into the article, chemical transformation, or release into the air. Freetaxusa 2012 The loss, destruction, packaging, repackaging, or warehousing of ODCs is not a use of the ODC. Freetaxusa 2012   The creation of a mixture containing an ODC is treated as a taxable use of the ODC contained in the mixture. Freetaxusa 2012 An ODC is contained in a mixture only if the chemical identity of the ODC is not changed. Freetaxusa 2012 Generally, tax is imposed when the mixture is created and not on its sale or use. Freetaxusa 2012 However, you can choose to have the tax imposed on its sale or use by checking the appropriate box on Form 6627. Freetaxusa 2012 You can revoke this choice only with IRS consent. Freetaxusa 2012   The creation of a mixture for export or for use as a feedstock is not a taxable use of the ODCs contained in the mixture. Freetaxusa 2012 Exceptions. Freetaxusa 2012   The following may be exempt from the tax on ODCs. Freetaxusa 2012 Metered-dose inhalers. Freetaxusa 2012 Recycled ODCs. Freetaxusa 2012 Exported ODCs. Freetaxusa 2012 ODCs used as feedstock. Freetaxusa 2012 Metered-dose inhalers. Freetaxusa 2012   There is no tax on ODCs used or sold for use as propellants in metered-dose inhalers. Freetaxusa 2012 For a sale to be nontaxable, you must obtain from the purchaser an exemption certificate that you rely on in good faith. Freetaxusa 2012 The certificate must be in substantially the form as the sample certificate set forth in Regulations section 52. Freetaxusa 2012 4682-2(d)(5). Freetaxusa 2012 The certificate may be included as part of the sales documentation. Freetaxusa 2012 Keep the certificate with your records. Freetaxusa 2012 Recycled ODCs. Freetaxusa 2012   There is no tax on any ODC diverted or recovered in the United States as part of a recycling process (and not as part of the original manufacturing or production process). Freetaxusa 2012 There is no tax on recycled Halon-1301 or recycled Halon-2402 imported from a country that has signed the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol). Freetaxusa 2012   The Montreal Protocol is administered by the United Nations (U. Freetaxusa 2012 N. Freetaxusa 2012 ). Freetaxusa 2012 To determine if a country has signed the Montreal Protocol, contact the U. Freetaxusa 2012 N. Freetaxusa 2012 The website is untreaty. Freetaxusa 2012 un. Freetaxusa 2012 org. Freetaxusa 2012 Exported ODCs. Freetaxusa 2012   Generally, there is no tax on ODCs sold for export if certain requirements are met. Freetaxusa 2012 For a sale to be nontaxable, you and the purchaser must be registered. Freetaxusa 2012 See Form 637, Application for Registration (for Certain Excise Tax Activities). Freetaxusa 2012 Also, you must obtain from the purchaser an exemption certificate that you rely on in good faith. Freetaxusa 2012 Keep the certificate with your records. Freetaxusa 2012 The certificate must be in substantially the form as the sample certificate set forth in Regulations section 52. Freetaxusa 2012 4682-5(d)(3). Freetaxusa 2012 The tax benefit of this exemption is limited. Freetaxusa 2012 For more information, see Regulations section 52. Freetaxusa 2012 4682-5. Freetaxusa 2012 ODCs used as feedstock. Freetaxusa 2012   There is no tax on ODCs sold for use or used as a feedstock. Freetaxusa 2012 An ODC is used as a feedstock only if the ODC is entirely consumed in the manufacture of another chemical. Freetaxusa 2012 The transformation of an ODC into one or more new compounds qualifies as use as a feedstock, but use of an ODC in a mixture does not qualify. Freetaxusa 2012   For a sale to be nontaxable, you must obtain from the purchaser an exemption certificate that you rely on in good faith. Freetaxusa 2012 The certificate must be in substantially the form as the sample certificate set forth in Regulations section 52. Freetaxusa 2012 4682-2(d)(2). Freetaxusa 2012 Keep the certificate with your records. Freetaxusa 2012 Credits or refunds. Freetaxusa 2012   A credit or refund (without interest) of tax paid on ODCs may be claimed if a taxed ODC is: Used as a propellant in a metered-dose inhaler (the person who used the ODC as a propellant may file a claim), Exported (the manufacturer may file a claim), or Used as a feedstock (the person who used the ODC may file a claim). Freetaxusa 2012 For information on how to file for credits or refunds, see the Instructions for Form 720 or Schedule 6 (Form 8849). Freetaxusa 2012 Conditions to allowance for ODCs exported. Freetaxusa 2012   To claim a credit or refund for ODCs that are exported, you must have repaid or agreed to repay the tax to the exporter, or obtained the exporter's written consent to allowance of the credit or refund. Freetaxusa 2012 You must also have the evidence required by the EPA as proof that the ODCs were exported. Freetaxusa 2012 Imported Taxable Products An imported product containing or manufactured with ODCs is subject to tax if it is entered into the United States for consumption, use, or warehousing and is listed in the Imported Products Table. Freetaxusa 2012 The Imported Products Table is listed in Regulations section 52. Freetaxusa 2012 4682-3(f)(6). Freetaxusa 2012 The tax is based on the weight of the ODCs used in the manufacture of the product. Freetaxusa 2012 Use the following methods to figure the ODC weight. Freetaxusa 2012 The actual (exact) weight of each ODC used as a material in manufacturing the product. Freetaxusa 2012 If the actual weight cannot be determined, the ODC weight listed for the product in the Imported Products Table. Freetaxusa 2012 However, if you cannot determine the actual weight and the table does not list an ODC weight for the product, the rate of tax is 1% of the entry value of the product. Freetaxusa 2012 Taxable event. Freetaxusa 2012   Tax is imposed on an imported taxable product when the product is first sold or used by its importer. Freetaxusa 2012 The importer is liable for the tax. Freetaxusa 2012 Use of imported products. Freetaxusa 2012   You use an imported product if you put it into service in a trade or business or for the production of income or use it in the making of an article, including incorporation into the article. Freetaxusa 2012 The loss, destruction, packaging, repackaging, warehousing, or repair of an imported product is not a use of that product. Freetaxusa 2012 Entry as use. Freetaxusa 2012   The importer may choose to treat the entry of a product into the United States as the use of the product. Freetaxusa 2012 Tax is imposed on the date of entry instead of when the product is sold or used. Freetaxusa 2012 The choice applies to all imported taxable products that you own and have not used when you make the choice and all later entries. Freetaxusa 2012 Make the choice by checking the box in Part II of Form 6627. Freetaxusa 2012 The choice is effective as of the beginning of the calendar quarter to which the Form 6627 applies. Freetaxusa 2012 You can revoke this choice only with IRS consent. Freetaxusa 2012 Sale of article incorporating imported product. Freetaxusa 2012   The importer may treat the sale of an article manufactured or assembled in the United States as the first sale or use of an imported taxable product incorporated in that article if both the following apply. Freetaxusa 2012 The importer has consistently treated the sale of similar items as the first sale or use of similar taxable imported products. Freetaxusa 2012 The importer has not chosen to treat entry into the United States as use of the product. Freetaxusa 2012 Imported products table. Freetaxusa 2012   The table lists all the products that are subject to the tax on imported taxable products and specifies the ODC weight (discussed later) of each product. Freetaxusa 2012   Each listing in the table identifies a product by name and includes only products that are described by that name. Freetaxusa 2012 Most listings identify a product by both name and Harmonized Tariff Schedule (HTS) heading. Freetaxusa 2012 In those cases, a product is included in that listing only if the product is described by that name and the rate of duty on the product is determined by reference to that HTS heading. Freetaxusa 2012 A product is included in the listing even if it is manufactured with or contains a different ODC than the one specified in the table. Freetaxusa 2012   Part II of the table lists electronic items that are not included within any other list in the table. Freetaxusa 2012 An imported product is included in this list only if the product meets one of the following tests. Freetaxusa 2012 It is an electronic component whose operation involves the use of nonmechanical amplification or switching devices such as tubes, transistors, and integrated circuits. Freetaxusa 2012 It contains components described in (1), which account for more than 15% of the cost of the product. Freetaxusa 2012   These components do not include passive electrical devices, such as resistors and capacitors. Freetaxusa 2012 Items such as screws, nuts, bolts, plastic parts, and similar specially fabricated parts that may be used to construct an electronic item are not themselves included in the listing for electronic items. Freetaxusa 2012 Rules for listing products. Freetaxusa 2012   Products are listed in the table according to the following rules. Freetaxusa 2012 A product is listed in Part I of the table if it is a mixture containing ODCs. Freetaxusa 2012 A product is listed in Part II of the table if the Commissioner has determined that the ODCs used as materials in the manufacture of the product under the predominant method are used for purposes of refrigeration or air conditioning, creating an aerosol or foam, or manufacturing electronic components. Freetaxusa 2012 A product is listed in Part III of the table if the Commissioner has determined that the product meets both the following tests. Freetaxusa 2012 It is not an imported taxable product. Freetaxusa 2012 It would otherwise be included within a list in Part II of the table. Freetaxusa 2012   For example, floppy disk drive units are listed in Part III because they are not imported taxable products and would have been included in the Part II list for electronic items not specifically identified, but for their listing in Part III. Freetaxusa 2012 ODC weight. Freetaxusa 2012   The Table ODC weight of a product is the weight, determined by the Commissioner, of the ODCs used as materials in the manufacture of the product under the predominant method of manufacturing. Freetaxusa 2012 The ODC weight is listed in Part II in pounds per single unit of product unless otherwise specified. Freetaxusa 2012 Modifying the table. Freetaxusa 2012   A manufacturer or importer of a product may request the IRS add a product and its ODC weight to the table. Freetaxusa 2012 They also may request the IRS remove a product from the table, or change or specify the ODC weight of a product. Freetaxusa 2012 To request a modification, see Regulations section 52. Freetaxusa 2012 4682-3(g) for the mailing address and information that must be included in the request. Freetaxusa 2012 Floor Stocks Tax Tax is imposed on any ODC held (other than by the manufacturer or importer of the ODC) on January 1 for sale or use in further manufacturing. Freetaxusa 2012 The person holding title (as determined under local law) to the ODC is liable for the tax, whether or not delivery has been made. Freetaxusa 2012 These chemicals are taxable without regard to the type or size of storage container in which the ODCs are held. Freetaxusa 2012 The tax may apply to an ODC whether it is in a 14-ounce can or a 30-pound tank. Freetaxusa 2012 You are liable for the floor stocks tax if you hold any of the following on January 1. Freetaxusa 2012 At least 400 pounds of ODCs other than halons or methyl chloroform, At least 50 pounds of halons, or At least 1,000 pounds of methyl chloroform. Freetaxusa 2012 If you are liable for the tax, prepare an inventory on January 1 of the taxable ODCs held on that date for sale or for use in further manufacturing. Freetaxusa 2012 You must pay this floor stocks tax by June 30 of each year. Freetaxusa 2012 Report the tax on Form 6627 and Part II of Form 720 for the second calendar quarter. Freetaxusa 2012 For the tax rates, see the Form 6627 instructions. Freetaxusa 2012 ODCs not subject to floor stocks tax. Freetaxusa 2012   The floor stocks tax is not imposed on any of the following ODCs. Freetaxusa 2012 ODCs mixed with other ingredients that contribute to achieving the purpose for which the mixture will be used, unless the mixture contains only ODCs and one or more stabilizers. Freetaxusa 2012 ODCs contained in a manufactured article in which the ODCs will be used for their intended purpose without being released from the article. Freetaxusa 2012 ODCs that have been reclaimed or recycled. Freetaxusa 2012 ODCs sold in a qualifying sale for: Use as a feedstock, Export, or Use as a propellant in a metered-dose inhaler. Freetaxusa 2012 Prev  Up  Next   Home   More Online Publications
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The Freetaxusa 2012

Freetaxusa 2012 3. Freetaxusa 2012   SIMPLE Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: SIMPLE IRA PlanWho Can Set Up a SIMPLE IRA Plan? Who Can Participate in a SIMPLE IRA Plan? How To Set Up a SIMPLE IRA Plan Notification Requirement Contribution Limits When To Deduct Contributions Where To Deduct Contributions Tax Treatment of Contributions Distributions (Withdrawals) More Information on SIMPLE IRA Plans SIMPLE 401(k) Plan Topics - This chapter discusses: SIMPLE IRA plan SIMPLE 401(k) plan Useful Items - You may want to see: Publications 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4284 SIMPLE IRA Plan Checklist 4334 SIMPLE IRA Plans for Small Businesses Forms (and Instructions) W-2 Wage and Tax Statement 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–Not for Use With a Designated Financial Institution 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–for Use With a Designated Financial Institution 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A savings incentive match plan for employees (SIMPLE plan) is a written arrangement that provides you and your employees with a simplified way to make contributions to provide retirement income. Freetaxusa 2012 Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. Freetaxusa 2012 In addition, you will contribute matching or nonelective contributions. Freetaxusa 2012 SIMPLE plans can only be maintained on a calendar-year basis. Freetaxusa 2012 A SIMPLE plan can be set up in either of the following ways. Freetaxusa 2012 Using SIMPLE IRAs (SIMPLE IRA plan). Freetaxusa 2012 As part of a 401(k) plan (SIMPLE 401(k) plan). Freetaxusa 2012 Many financial institutions will help you set up a SIMPLE plan. Freetaxusa 2012 SIMPLE IRA Plan A SIMPLE IRA plan is a retirement plan that uses SIMPLE IRAs for each eligible employee. Freetaxusa 2012 Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. Freetaxusa 2012 For the definition of an eligible employee, see Who Can Participate in a SIMPLE IRA Plan , later. Freetaxusa 2012 Who Can Set Up a SIMPLE IRA Plan? You can set up a SIMPLE IRA plan if you meet both the following requirements. Freetaxusa 2012 You meet the employee limit. Freetaxusa 2012 You do not maintain another qualified plan unless the other plan is for collective bargaining employees. Freetaxusa 2012 Employee limit. Freetaxusa 2012   You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year. Freetaxusa 2012 Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. Freetaxusa 2012 Employees include self-employed individuals who received earned income and leased employees (defined in chapter 1). Freetaxusa 2012   Once you set up a SIMPLE IRA plan, you must continue to meet the 100-employee limit each year you maintain the plan. Freetaxusa 2012 Grace period for employers who cease to meet the 100-employee limit. Freetaxusa 2012   If you maintain the SIMPLE IRA plan for at least 1 year and you cease to meet the 100-employee limit in a later year, you will be treated as meeting it for the 2 calendar years immediately following the calendar year for which you last met it. Freetaxusa 2012   A different rule applies if you do not meet the 100-employee limit because of an acquisition, disposition, or similar transaction. Freetaxusa 2012 Under this rule, the SIMPLE IRA plan will be treated as meeting the 100-employee limit for the year of the transaction and the 2 following years if both the following conditions are satisfied. Freetaxusa 2012 Coverage under the plan has not significantly changed during the grace period. Freetaxusa 2012 The SIMPLE IRA plan would have continued to qualify after the transaction if you had remained a separate employer. Freetaxusa 2012    The grace period for acquisitions, dispositions, and similar transactions also applies if, because of these types of transactions, you do not meet the rules explained under Other qualified plan or Who Can Participate in a SIMPLE IRA Plan, below. Freetaxusa 2012 Other qualified plan. Freetaxusa 2012   The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year the SIMPLE IRA plan becomes effective. Freetaxusa 2012 Exception. Freetaxusa 2012   If you maintain a qualified plan for collective bargaining employees, you are permitted to maintain a SIMPLE IRA plan for other employees. Freetaxusa 2012 Who Can Participate in a SIMPLE IRA Plan? Eligible employee. Freetaxusa 2012   Any employee who received at least $5,000 in compensation during any 2 years preceding the current calendar year and is reasonably expected to receive at least $5,000 during the current calendar year is eligible to participate. Freetaxusa 2012 The term “employee” includes a self-employed individual who received earned income. Freetaxusa 2012   You can use less restrictive eligibility requirements (but not more restrictive ones) by eliminating or reducing the prior year compensation requirements, the current year compensation requirements, or both. Freetaxusa 2012 For example, you can allow participation for employees who received at least $3,000 in compensation during any preceding calendar year. Freetaxusa 2012 However, you cannot impose any other conditions for participating in a SIMPLE IRA plan. Freetaxusa 2012 Excludable employees. Freetaxusa 2012   The following employees do not need to be covered under a SIMPLE IRA plan. Freetaxusa 2012 Employees who are covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Freetaxusa 2012 Nonresident alien employees who have received no U. Freetaxusa 2012 S. Freetaxusa 2012 source wages, salaries, or other personal services compensation from you. Freetaxusa 2012 Compensation. Freetaxusa 2012   Compensation for employees is the total wages, tips, and other compensation from the employer subject to federal income tax withholding and the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. Freetaxusa 2012 Compensation also includes the employee's salary reduction contributions made under this plan and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the employer on Form W-2. Freetaxusa 2012 If you are self-employed, compensation is your net earnings from self-employment (line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040)) before subtracting any contributions made to the SIMPLE IRA plan for yourself. Freetaxusa 2012 How To Set Up a SIMPLE IRA Plan You can use Form 5304-SIMPLE or Form 5305-SIMPLE to set up a SIMPLE IRA plan. Freetaxusa 2012 Each form is a model savings incentive match plan for employees (SIMPLE) plan document. Freetaxusa 2012 Which form you use depends on whether you select a financial institution or your employees select the institution that will receive the contributions. Freetaxusa 2012 Use Form 5304-SIMPLE if you allow each plan participant to select the financial institution for receiving his or her SIMPLE IRA plan contributions. Freetaxusa 2012 Use Form 5305-SIMPLE if you require that all contributions under the SIMPLE IRA plan be deposited initially at a designated financial institution. Freetaxusa 2012 The SIMPLE IRA plan is adopted when you have completed all appropriate boxes and blanks on the form and you (and the designated financial institution, if any) have signed it. Freetaxusa 2012 Keep the original form. Freetaxusa 2012 Do not file it with the IRS. Freetaxusa 2012 Other uses of the forms. Freetaxusa 2012   If you set up a SIMPLE IRA plan using Form 5304-SIMPLE or Form 5305-SIMPLE, you can use the form to satisfy other requirements, including the following. Freetaxusa 2012 Meeting employer notification requirements for the SIMPLE IRA plan. Freetaxusa 2012 Form 5304-SIMPLE and Form 5305-SIMPLE contain a Model Notification to Eligible Employees that provides the necessary information to the employee. Freetaxusa 2012 Maintaining the SIMPLE IRA plan records and proving you set up a SIMPLE IRA plan for employees. Freetaxusa 2012 Deadline for setting up a SIMPLE IRA plan. Freetaxusa 2012   You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you did not previously maintain a SIMPLE IRA plan. Freetaxusa 2012 This requirement does not apply if you are a new employer that comes into existence after October 1 of the year the SIMPLE IRA plan is set up and you set up a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence. Freetaxusa 2012 If you previously maintained a SIMPLE IRA plan, you can set up a SIMPLE IRA plan effective only on January 1 of a year. Freetaxusa 2012 A SIMPLE IRA plan cannot have an effective date that is before the date you actually adopt the plan. Freetaxusa 2012 Setting up a SIMPLE IRA. Freetaxusa 2012   SIMPLE IRAs are the individual retirement accounts or annuities into which the contributions are deposited. Freetaxusa 2012 A SIMPLE IRA must be set up for each eligible employee. Freetaxusa 2012 Forms 5305-S, SIMPLE Individual Retirement Trust Account, and 5305-SA, SIMPLE Individual Retirement Custodial Account, are model trust and custodial account documents the participant and the trustee (or custodian) can use for this purpose. Freetaxusa 2012   A SIMPLE IRA cannot be a Roth IRA. Freetaxusa 2012 Contributions to a SIMPLE IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Freetaxusa 2012 Deadline for setting up a SIMPLE IRA. Freetaxusa 2012   A SIMPLE IRA must be set up for an employee before the first date by which a contribution is required to be deposited into the employee's IRA. Freetaxusa 2012 See Time limits for contributing funds , later, under Contribution Limits. Freetaxusa 2012 Credit for startup costs. Freetaxusa 2012   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE IRA plan that first became effective in 2013. Freetaxusa 2012 For more information, see Credit for startup costs under Reminders, earlier. Freetaxusa 2012 Notification Requirement If you adopt a SIMPLE IRA plan, you must notify each employee of the following information before the beginning of the election period. Freetaxusa 2012 The employee's opportunity to make or change a salary reduction choice under a SIMPLE IRA plan. Freetaxusa 2012 Your decision to make either matching contributions or nonelective contributions (discussed later). Freetaxusa 2012 A summary description provided by the financial institution. Freetaxusa 2012 Written notice that his or her balance can be transferred without cost or penalty if they use a designated financial institution. Freetaxusa 2012 Election period. Freetaxusa 2012   The election period is generally the 60-day period immediately preceding January 1 of a calendar year (November 2 to December 31 of the preceding calendar year). Freetaxusa 2012 However, the dates of this period are modified if you set up a SIMPLE IRA plan in mid-year (for example, on July 1) or if the 60-day period falls before the first day an employee becomes eligible to participate in the SIMPLE IRA plan. Freetaxusa 2012   A SIMPLE IRA plan can provide longer periods for permitting employees to enter into salary reduction agreements or to modify prior agreements. Freetaxusa 2012 For example, a SIMPLE IRA plan can provide a 90-day election period instead of the 60-day period. Freetaxusa 2012 Similarly, in addition to the 60-day period, a SIMPLE IRA plan can provide quarterly election periods during the 30 days before each calendar quarter, other than the first quarter of each year. Freetaxusa 2012 Contribution Limits Contributions are made up of salary reduction contributions and employer contributions. Freetaxusa 2012 You, as the employer, must make either matching contributions or nonelective contributions, defined later. Freetaxusa 2012 No other contributions can be made to the SIMPLE IRA plan. Freetaxusa 2012 These contributions, which you can deduct, must be made timely. Freetaxusa 2012 See Time limits for contributing funds , later. Freetaxusa 2012 Salary reduction contributions. Freetaxusa 2012   The amount the employee chooses to have you contribute to a SIMPLE IRA on his or her behalf cannot be more than $12,000 for 2013 and 2014. Freetaxusa 2012 These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount. Freetaxusa 2012 You cannot place restrictions on the contribution amount (such as limiting the contribution percentage), except to comply with the $12,000 limit. Freetaxusa 2012   If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($17,500 for 2013 and 2014) on exclusion of salary reduction contributions and other elective deferrals. Freetaxusa 2012 Catch-up contributions. Freetaxusa 2012   A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Freetaxusa 2012 The catch-up contribution limit for 2013 and 2014 for SIMPLE IRA plans is $2,500. Freetaxusa 2012 Salary reduction contributions are not treated as catch-up contributions for 2013 or 2014 until they exceed $12,000. Freetaxusa 2012 However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Freetaxusa 2012 The catch-up contribution limit. Freetaxusa 2012 The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions. Freetaxusa 2012 Employer matching contributions. Freetaxusa 2012   You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. Freetaxusa 2012 This requirement does not apply if you make nonelective contributions as discussed later. Freetaxusa 2012 Example. Freetaxusa 2012 In 2013, your employee, John Rose, earned $25,000 and chose to defer 5% of his salary. Freetaxusa 2012 Your net earnings from self-employment are $40,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. Freetaxusa 2012 You make 3% matching contributions. Freetaxusa 2012 The total contribution you make for John is $2,000, figured as follows. Freetaxusa 2012 Salary reduction contributions ($25,000 × . Freetaxusa 2012 05) $1,250 Employer matching contribution ($25,000 × . Freetaxusa 2012 03) 750 Total contributions $2,000     The total contribution you make for yourself is $5,200, figured as follows. Freetaxusa 2012 Salary reduction contributions ($40,000 × . Freetaxusa 2012 10) $4,000 Employer matching contribution ($40,000 × . Freetaxusa 2012 03) 1,200 Total contributions $5,200 Lower percentage. Freetaxusa 2012   If you choose a matching contribution less than 3%, the percentage must be at least 1%. Freetaxusa 2012 You must notify the employees of the lower match within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Freetaxusa 2012 You cannot choose a percentage less than 3% for more than 2 years during the 5-year period that ends with (and includes) the year for which the choice is effective. Freetaxusa 2012 Nonelective contributions. Freetaxusa 2012   Instead of matching contributions, you can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount you select) of compensation from you for the year. Freetaxusa 2012 If you make this choice, you must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. Freetaxusa 2012 Only $255,000 of the employee's compensation can be taken into account to figure the contribution limit in 2013 ($260,000 in 2014). Freetaxusa 2012   If you choose this 2% contribution formula, you must notify the employees within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Freetaxusa 2012 Example 1. Freetaxusa 2012 In 2013, your employee, Jane Wood, earned $36,000 and chose to have you contribute 10% of her salary. Freetaxusa 2012 Your net earnings from self-employment are $50,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. Freetaxusa 2012 You make a 2% nonelective contribution. Freetaxusa 2012 Both of you are under age 50. Freetaxusa 2012 The total contribution you make for Jane is $4,320, figured as follows. Freetaxusa 2012 Salary reduction contributions ($36,000 × . Freetaxusa 2012 10) $3,600 2% nonelective contributions ($36,000 × . Freetaxusa 2012 02) 720 Total contributions $4,320     The total contribution you make for yourself is $6,000, figured as follows. Freetaxusa 2012 Salary reduction contributions ($50,000 × . Freetaxusa 2012 10) $5,000 2% nonelective contributions ($50,000 × . Freetaxusa 2012 02) 1,000 Total contributions $6,000 Example 2. Freetaxusa 2012 Using the same facts as in Example 1, above, the maximum contribution you make for Jane or for yourself if you each earned $75,000 is $13,500, figured as follows. Freetaxusa 2012 Salary reduction contributions (maximum amount allowed) $12,000 2% nonelective contributions ($75,000 × . Freetaxusa 2012 02) 1,500 Total contributions $13,500 Time limits for contributing funds. Freetaxusa 2012   You must make the salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. Freetaxusa 2012 You must make matching contributions or nonelective contributions by the due date (including extensions) for filing your federal income tax return for the year. Freetaxusa 2012 Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions. Freetaxusa 2012 When To Deduct Contributions You can deduct SIMPLE IRA contributions in the tax year within which the calendar year for which contributions were made ends. Freetaxusa 2012 You can deduct contributions for a particular tax year if they are made for that tax year and are made by the due date (including extensions) of your federal income tax return for that year. Freetaxusa 2012 Example 1. Freetaxusa 2012 Your tax year is the fiscal year ending June 30. Freetaxusa 2012 Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2013 before July 1, 2013) are deductible in the tax year ending June 30, 2014. Freetaxusa 2012 Example 2. Freetaxusa 2012 You are a sole proprietor whose tax year is the calendar year. Freetaxusa 2012 Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2014 by April 15, 2014) are deductible in the 2013 tax year. Freetaxusa 2012 Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Freetaxusa 2012 For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120 or Form 1120S. Freetaxusa 2012 Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Freetaxusa 2012 (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you receive from the partnership. Freetaxusa 2012 ) Tax Treatment of Contributions You can deduct your contributions and your employees can exclude these contributions from their gross income. Freetaxusa 2012 SIMPLE IRA plan contributions are not subject to federal income tax withholding. Freetaxusa 2012 However, salary reduction contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes. Freetaxusa 2012 Matching and nonelective contributions are not subject to these taxes. Freetaxusa 2012 Reporting on Form W-2. Freetaxusa 2012   Do not include SIMPLE IRA plan contributions in the “Wages, tips, other compensation” box of Form W-2. Freetaxusa 2012 You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Freetaxusa 2012 You must also include them in box 12. Freetaxusa 2012 Mark the “Retirement plan” checkbox in box 13. Freetaxusa 2012 For more information, see the Form W-2 instructions. Freetaxusa 2012 Distributions (Withdrawals) Distributions from a SIMPLE IRA are subject to IRA rules and generally are includible in income for the year received. Freetaxusa 2012 Tax-free rollovers can be made from one SIMPLE IRA into another SIMPLE IRA. Freetaxusa 2012 However, a rollover from a SIMPLE IRA to a non-SIMPLE IRA can be made tax free only after a 2-year participation in the SIMPLE IRA plan. Freetaxusa 2012 Generally, you or your employee must begin to receive distributions from a SIMPLE IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Freetaxusa 2012 Early withdrawals generally are subject to a 10% additional tax. Freetaxusa 2012 However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation. Freetaxusa 2012 More information. Freetaxusa 2012   See Publication 590 for information about IRA rules, including those on the tax treatment of distributions, rollovers, required distributions, and income tax withholding. Freetaxusa 2012 More Information on SIMPLE IRA Plans If you need help to set up or maintain a SIMPLE IRA plan, go to the IRS website and search SIMPLE IRA Plan. Freetaxusa 2012 SIMPLE 401(k) Plan You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plan. Freetaxusa 2012 A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4, including the required distribution rules. Freetaxusa 2012 However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules discussed in chapter 4 if the plan meets the conditions listed below. Freetaxusa 2012 Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $12,000 for 2013 and 2014. Freetaxusa 2012 If permitted under the plan, an employee who is age 50 or over can also make a catch-up contribution of up to $2,500 for 2013 and 2014. Freetaxusa 2012 See Catch-up contributions , earlier under Contribution Limits. Freetaxusa 2012 You must make either: Matching contributions up to 3% of compensation for the year, or Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year. Freetaxusa 2012 No other contributions can be made to the trust. Freetaxusa 2012 No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan sponsored by you on behalf of any employee eligible to participate in the SIMPLE 401(k) plan. Freetaxusa 2012 The employee's rights to any contributions are nonforfeitable. Freetaxusa 2012 No more than $255,000 of the employee's compensation can be taken into account in figuring matching contributions and nonelective contributions in 2013 ($260,000 in 2014). Freetaxusa 2012 Compensation is defined earlier in this chapter. Freetaxusa 2012 Employee notification. Freetaxusa 2012   The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. Freetaxusa 2012 See Notification Requirement in this chapter. Freetaxusa 2012 Credit for startup costs. Freetaxusa 2012   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE 401(k) plan that first became effective in 2013. Freetaxusa 2012 For more information, see Credit for startup costs under Reminders, earlier. Freetaxusa 2012 Note on Forms. Freetaxusa 2012   Please note that Forms 5304-SIMPLE and 5305-SIMPLE can not be used to establish a SIMPLE 401(k) plan. Freetaxusa 2012 To set up a SIMPLE 401(k) plan, see Adopting a Written Plan in chapter 4. Freetaxusa 2012 Prev  Up  Next   Home   More Online Publications