Form W-2 Reporting for SIMPLE IRA Contributions

Contributions to an employee's SIMPLE IRA may be made by both the employee and the employer.

Employer Contributions

Matching or nonelective contributions made by an employer to an employee's SIMPLE IRA are not subject to federal income taxes, social security taxes, or Medicare taxes, and are not shown on Form W-2.

Employee Salary Reduction Contributions

Federal Income Taxes:

Amounts withheld from an employee's gross pay for contributions to his SIMPLE IRA are called salary reduction contributions. These contributions are not subject to federal income taxes. Do not include salary reduction contributions in Box 1 of Form W-2, Wages, tips, other compensation.

FICA Taxes (Federal Insurance Contribution Act):

Salary reduction contributions are subject to social security and and Medicare taxes and are included in the boxes on Form W-2 for Social Security wages (Box 3) and Medicare wages and tips (Box 5).

W-2 Code to Use in Box 12:

Enter Code D or S, whichever applies

  • Code D: Elective deferrals to 401(k) plan
  • Code S: SIMPLE retirement account (408(p) plan)

Example:

Salary reduction contributions reported on Form W-2 for Jack Jones:

  • Gross Wages: $40,000
  • Jack's salary reduction contributions to his SIMPLE plan total $5,000

Result:

  • Box 1:
    • Wages, tips, other compensation: $35,000.
    • The $5,000 contribution is not subject to federal income taxes
  • Box 3: Social security wages: $40,000
  • Box 5: Medicare wages and tips: $40,000
    • The $5,000 contribution is subject to social security and Medicare taxes
  • Box 12:
    • Enter $5,000
    • Enter Code S: SIMPLE retirement account (408(p) plan)
  • Box 13:
    • Enter a checkmark in the retirement plan box

FUTA Taxes (Federal Unemployment Tax Act)

Employer Contributions:

  • Employer contributions to an employee's SIMPLE IRA are NOT subject to FUTA taxes.

Employee Salary Reduction Contributions:

  • Employee salary reduction contributions are subject to FUTA taxes.
  • FUTA taxes are strictly an employer-paid tax; you do not withhold FUTA taxes from an employee's gross wages.
  • The maximum amount subject to FUTA tax is the first $7,000 of gross wages paid to each employee.
    • So, in the previous example, the employer would be liable for FUTA taxes on the first $7,000 of Jack's gross wages.

Self-Employed Persons:

Although a self-employed person is treated as both employer/employee for retirement plan purposes, a self-employed person is not treated as an employee for payroll tax purposes (i.e. a self-employed person does not receive Form W-2).

  • Self-employed income is reported on Schedule C (F for farming and E for partners).
  • A self-employed person deducts SIMPLE IRA contributions made for himself on Form 1040, line 28.

File your personal and small business taxes (Schedule C)