CALCULATING 5330 EXCISE TAX

[Guest arlene]

For failure to timely submit Employer contributions and/or Employee Deferrals to a 401(k) Plan, how is the 5330 excise tax calculated?- Is the 15% excise tax on the full amount of the late contribution and late deferrals or is it 15% of the interest lost on the money?

[Belgarath]

Have you checked to see if the employer is eligible for VFC? If so, then the excise taxes could be eligible to be waived.

[Guest arlene]

They are eligible for VFCP. But, we are still interested in determining the proper method of calculating the excise tax if they elect not to use VFCP.

[Alf]

The excise tax should be based on the impermissible employer benefit. By keeping the cash, the employer saved from having to pay interest to a bank in a normal loan, so technically, the excise tax is based on the rate the employer pays on borrowings or its internal rate of return on assets. Take that rate and multiply it by the amount of the contributions only, not the make up earnings that the participants got credited with.

[Archimage]

The excise tax is 15% of the lost earnings.