cpc0506 Posted January 7, 2011 Posted January 7, 2011 A plan fails the ADP Test in 2010. Refunds are made within the first 2 1/2 months of the following year (2011). There were gains on the return as well. What is the tax consequence to the affected employee? Is the full amount taxable as 2010 income? Just the returned Salary deferral in 2010 and gain in 2011? Or all taxable in 2011? I know there are no gap earnings any more but I am finding conflicting info on handling this. The plan is not failing the ACP test, but due to the return for the ADP test, the participant, in essense, will receive too much match. These funds need to be forfeited. Is there an issue if the funds are not deposited to the participant's account until later in the year (after the 2 1/2 month period, closer to due date of corporate tax return.) Thanks.
BG5150 Posted January 7, 2011 Posted January 7, 2011 The refund of gross failure amount + / - earnings will be taxable to the participant in the year of distribution; in this case, 2011. Generally, there is no gap period earnings, but the document may be written to still allow for it. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
cpc0506 Posted January 7, 2011 Author Posted January 7, 2011 The refund of gross failure amount + / - earnings will be taxable to the participant in the year of distribution; in this case, 2011.Generally, there is no gap period earnings, but the document may be written to still allow for it. Thanks.
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