Sole Proprietor's Spouse

[bzorc]

Sole Proprietor has a handful of W-2 employees. Has a PS plan to where he makes a contribution each year, split between his employees (Schedule C expense) and himself (Page 1 Form 1040 above the line deduction). Starting in 2004, he began to pay his spouse on a basis such that she is reporting the income from her husband as her own Schedule C income. Question is can this Schedule C income for her be considered for a PS plan contribution? My belief is that she would need to be paid on a W-2 basis in order to (after meeting the eligibility requirements) become eligible to participate in the plan.

Anyone have any thoughts? Thanks for any help.

[Blinky the 3-eyed Fish]

If the spouse is being paid income that is flowing through to her Sch C, then she is being treated as an independent contractor. (I will go on the basis that this is a correct determination.) Otherwise, her wages would be reported on a W-2. Now, a normal independent contractor is by definition not eligible, but here the spouse's sole proprietorship is most likely is in a controlled group with the husband's sole prop. I can't see how it meets the 1563(e)(5) (I hope that's the right cite) exception. If that is the case, to be eligible either the spouse's entity must adopt the plan or they are eligible because the document is a standardized prototype.

War the stork!

[No Name]

I'll have to assume husband is over the comp limit for plan purposes. Otherwise, why pay the FICA on a second income? Also assume that the contribution is large enough to justify the FICA expense.

[JAY21]

I agree with Blinky's comments.

[Blinky the 3-eyed Fish]

Careful with what you agree with; after all I did type "War the stork!".

[No Name]

Yeah,

What is "war the stork"?

Code section, cites appreciated ;-}

[Guest quinn the car fixer]

section: XRT 782 (?)