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qhinton
Level 2

Simple IRA

My payroll is set up for a Simple IRA contribution/defection. My business is an S-Corp with 3 people contributing. One employee and two partners that are set up as employees. Due to COVID my partner and I decided to wait until our last payroll to decide how much we could afford to contribute to the Simple IRA.  We decided to do put in 5k each and our last check equalled zero. However, I noticed Federal and WI state taxes taken out. From my understanding federal income taxes are excluded from salary reduction contributions. Is this correct? 

5 Comments 5
LieraMarie_A
QuickBooks Team

Simple IRA

I've got just the information you're looking for regarding the salary reduction contribution, @qhinton.

 

SIMPLE IRA contributions are not subject to federal income tax withholding. However, salary reduction contributions are subject to Social Security, Medicare, and Federal Unemployment (FUTA) taxes. To learn more on how it's reported on federal forms, go to the Simple IRA / Simple IRA catchup section in this article: Supported pay types and deductions explained.

 

Additionally, I've got you some resources about operating SIMPLE IRA Plan that I'm sure you'll find helpful:

 

Feel free to come back here again if you have other concerns about retirement plans in QBO. I'm always available here to help. Have a good one. 

qhinton
Level 2

Simple IRA

So if I have the Simple IRA set up with Intuit shouldn't the system automatically calculate the appropriate tax? IE. Not have the federal and state taxes deducted? 

JessT
QuickBooks Team

Simple IRA

Hi qhinton,

 

Thank you for your follow up question on why the Simple IRA affects FIT and SIT. In this case, I would recommend reaching out to our Support team. That way, they can check this further using a screen-sharing tool. They are open from 6 AM to 6 PM PST.

 

If you have other questions, you can always go back to this thread.

qhinton
Level 2

Simple IRA

Hi,

 

Here is a message from my accountant. I hope this helps in the future. 

 

Gross Pay

                  6,513.71

                                 6,700.00

 This is the gross pay amount that gets reported as a business expenses and subject to SS & MED

    

 Vanguard

                  6,000.00

                                 6,000.00

 This is your IRA contributions that are not subject to Federal and State withholdings 

    

 Adjusted Gross Pay

                      513.71

                                     700.00

 This is the adjusted pay that is subject to Federal and State withholdings and total amount for the year appears on your W2 as taxable amount

    

 FWT

                           3.68

                                     166.35

 

 SS

                      403.85

                                     415.40

 

 MED

                        94.45

                                       97.15

 

 WI-WT

                        11.73

                                       21.10

 
    

 Net Pay

                            0.00

                                         0.00

 

 

 

For your payroll service to run this IRA contribution payroll they needed to gross up the your wage to account for the social security and Medicare taxes that need to be withheld, even though these payroll checks were created for both of you to contribute to your IRA accounts at $6,000 each, you cannot simply have gross pay as $6,000 because that would have left you with negative Net Pay since social security and Medicare taxes need to be withheld and the $6,000 contribution, for example;

 

Gross Pay

                  6,000.00

  

 Vanguard 

                  6,000.00

  

 Adjusted Gross Pay

0.00

  

FWT

0.00

SS

                      372.00

 MED

                        87.00

 WI-WT

0.00

  

Net Pay

                    (459.00)

 

qhinton
Level 2

Simple IRA

Message from my accountant. I hope this helps if someone else has the same question. The Intuit staff has no way of explaining this. I spent 3 hrs on the phone and they almost re-ran the payroll without fed/state witholdings. 

Gross Pay

                  6,513.71

                                 6,700.00

 This is the gross pay amount that gets reported as a business expenses and subject to SS & MED

    

 Vanguard

                  6,000.00

                                 6,000.00

 This is your IRA contributions that are not subject to Federal and State withholdings 

    

 Adjusted Gross Pay

                      513.71

                                     700.00

 This is the adjusted pay that is subject to Federal and State withholdings and total amount for the year appears on your W2 as taxable amount

    

 FWT

                           3.68

                                     166.35

 

 SS

                      403.85

                                     415.40

 

 MED

                        94.45

                                       97.15

 

 WI-WT

                        11.73

                                       21.10

 
    

 Net Pay

                            0.00

                                         0.00

 

 

 

For your payroll service to run this IRA contribution payroll they needed to gross up the your wage to account for the social security and Medicare taxes that need to be withheld, even though these payroll checks were created for both of you to contribute to your IRA accounts at $6,000 each, you cannot simply have gross pay as $6,000 because that would have left you with negative Net Pay since social security and Medicare taxes need to be withheld and the $6,000 contribution, for example;

 

Gross Pay

                  6,000.00

  

 Vanguard 

                  6,000.00

  

 Adjusted Gross Pay

0.00

  

FWT

0.00

SS

                      372.00

 MED

                        87.00

 WI-WT

0.00

  

Net Pay

                    (459.00)

 

 

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