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SEP-IRA contribution for 1099 compensation?


Guest Rick Kraus
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Guest Rick Kraus

Our company has a SARSEP IRA which has been in force since 1990. With it, employees who have been with the company at least three years can choose to fully participate by electing salary deferrals out of their paycheck. At the end of the year we are also able to make an employer SEP IRA contribution (salary percentage based) to all elegible employees even though they don’t elect salary deferrals. We have no problem with that. However, we now have a former full-time employee who left employment here in 1998 and has since gone on to another job. Since then, he has performed consulting work for us as a software developer for which he has been issued a 1099 as an independent contractor. He now claims that he is still eligible for the yearly employer contribution based on last years 1099 because there is an IRS definition that says compensation can be “fees for professional services”. Do IRS rules require a 1099 based SEP IRA contribution to former employees who had no wages the previous year?

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