SIMPLE IRA Late Salary Reduction Contributions

[Roger389]

Hi all,

Thank you in advance for your input.  Long time lurker, but 1st time poster.

My question pertains to the language of the governing IRS rule, IRC section 408(p)(5)(A)(i) for SIMPLE IRA employee deferrals:

Quote

(A) an employer must—

(i)

make the elective employer contributions under paragraph (2)(A)(i) not later than the close of the 30-day period following the last day of the month with respect to which the contributions are to be made, and

The IRS FAQ states:

Quote

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

I'm paid monthly, on the first business day of the subsequent month.

For instance:

January-->paid 2/3/20 for January

February-->paid 3/2/20 for February

March-->paid 4/1/20 for March

 

My interpretation of the IRS regulation is that elective employee salary deferrals should be made as following:

For work performed in January, no later than 30 days from 1/31

For work performed in February, no later than 30 days from 2/29

etc etc.

 

However, my employer is interpreting this as "since I'm being paid in in February", the employer has 30 days from the end of February (i.e. end of March) to make what were my January salary deferrals.  I strongly disagree and feel that this 60 day window is a clear violation of the law.

What do you think in response to the IRS definition of "in which the amounts would otherwise have been payable to the employees in cash"

Please let me know if I need to clarify.

[Mike Preston]

You are wrong. Sorry. 

[Larry Starr]

14 hours ago, Roger389 said:

Hi all,

Thank you in advance for your input.  Long time lurker, but 1st time poster.

My question pertains to the language of the governing IRS rule, IRC section 408(p)(5)(A)(i) for SIMPLE IRA employee deferrals:

The IRS FAQ states:

I'm paid monthly, on the first business day of the subsequent month.

For instance:

January-->paid 2/3/20 for January

February-->paid 3/2/20 for February

March-->paid 4/1/20 for March

 

My interpretation of the IRS regulation is that elective employee salary deferrals should be made as following:

For work performed in January, no later than 30 days from 1/31

For work performed in February, no later than 30 days from 2/29

etc etc.

 

However, my employer is interpreting this as "since I'm being paid in in February", the employer has 30 days from the end of February (i.e. end of March) to make what were my January salary deferrals.  I strongly disagree and feel that this 60 day window is a clear violation of the law.

What do you think in response to the IRS definition of "in which the amounts would otherwise have been payable to the employees in cash"

Please let me know if I need to clarify.

You are paid in February; it doesn't matter for what period you are paid, but you ARE paid in February.  30 days AFTER that month end is the end of March. You are wrong and your employer is right.  BUT, see my next comment.

Unless you are being paid in advance for a month (which, from your posting, you are being paid IN ARREARS for the prior month), most states do not allow payment if money owed to you only once a month.  Most states require no less than semi-monthly (twice a month) in arrears.  You should check with a labor lawyer in your state as to whether your employer is violating labor laws in how you are being paid!

[Mike Preston]

10 hours ago, Mike Preston said:

You are wrong. Sorry. 

And just in case it isn't clear from the brevity of my comment, thanks for the extremely well written post. I know the answer isn't what you want. 

[Roger389]

Fascinating.  That is why I came to you for help!  Indeed I'm paid in arrears, once monthly as indicated. Takes a constant amount of budgeting and future planning... I'm not sure if its relevant that much of the payment is commission based from the prior month. 

My cursory review would indicate that I'm not in a state with very many specifics to this issue.  I would think they've done their homework as well, but I've learned on this forum that many employers do not.  

So, I stand corrected. 

Indeed, looking back at last years deposits... 

Example:

Work performed for all of August 2019. Paid September 2, 2019.  Deferrals hit SIMPLE-IRA at end of October 2019.

Thanks to all...not what I was hoping to hear, but makes sense. ?   

 

[Larry Starr]

14 hours ago, Roger389 said:

Fascinating.  That is why I came to you for help!  Indeed I'm paid in arrears, once monthly as indicated. Takes a constant amount of budgeting and future planning... I'm not sure if its relevant that much of the payment is commission based from the prior month. 

My cursory review would indicate that I'm not in a state with very many specifics to this issue.  I would think they've done their homework as well, but I've learned on this forum that many employers do not.  

So, I stand corrected. 

Indeed, looking back at last years deposits... 

Example:

Work performed for all of August 2019. Paid September 2, 2019.  Deferrals hit SIMPLE-IRA at end of October 2019.

Thanks to all...not what I was hoping to hear, but makes sense. ?   

 

Yes, commissions are different than hourly/salary compensation, so it may be ok.  However, you can call your local state department of labor and they more than likely will be able to provide you appropriate information.