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Usually, it's the wife in a physician practice that is performing office services for about what the deferral amount would be.

Have the Plan Administrator make a decision on how it will be handled and then treat all future participants the same way. Ideally incorporate the decision into the Plan's Administrative procedures or better yet formalize it with a Plan Amendment. (It is possible this is part of your new PPA document, I know it was added to ours). There are a number of acceptable alternatives that include - All participants will be treated in the class they are in on the 1st day of the plan year. All participants will be treated in the class they are in on the last day of the plan year. Participants will receive a "blended rate base pro-rata" on when the change occurs. Participants will get A% on compensation earned while in group A and B% on compensation while in group B. There may be other acceptable methods but I think the most important thing is establishing a rule an following it in a non-arbitrary manner.

And it's not quite that simple, is it? The part of compensation that is not deferred is taxable income. The FICA amount is subject to federal income tax at a rate of 10%, as is the amount paid as income tax, so income tax = 0.1 x (FICA + income tax), or income tax = FICA / 9.0. For compensation of say $1000, FICA is $76.50, and federal income tax is $8.50. So, there's $915.00 left to defer. If there are other deductions, such as, for insurance, state income tax, etc., it's more complicated, and there's less left to defer. Bottom line is that Bill Presson's general rule is a good suggestion, and I'd lean toward 80% or 85%, because 90% may be cutting it very close.

Thank you for all of your replies. For some reason, I was under the impression that filing the same as in the previous year was only a one time deal once you reached over 100 lives.That is, one could only use it for the first year that they were over 100 lives then had to switch over to the Sched. H after that first year. Thanks again for the clarification.

As long as 5500's are filed, whether 1 participant or not, SF or EZ, using the same tax id and plan number, I think you are ok. I agree with the above that says even if you are under $250k, still file the EZ. Or, you can wait for the "you didn't file for 20XX" letter and explain it then. Probably take more time to put together a response (and a response to their response) than to just create the EZ, sign it and put a stamp on it.

I thought purchasing employees went out sometime in the 1860s

Nope. See PBGC Blue Books. Q&As 2000-16 and 2007-05. http://www.pbgc.gov/prac/other-guidance/blue-books.html

I think you have two options: 1. Amend to 90% 2. Find a new payroll provider As a general rule, we recommend clients keep the maximum at 80 or 90 because of the payroll tax issue.