Leased Employees Coverage

[Guest dixie]

If all employees of S Corp are leased except owners, and leasing co has 401k that employees contribute to, can business start a SIMPLE or SEP? Must offer to employees? Where in tax code, etc is this addressed besides IRC 414?

[Dave Baker]

414(n)(3) says the requirements of 414(n) apply for purposes of Code section 408(k) (the SEP Code section) ... and I think it's been amended to cover the SIMPLE IRA section also ... so that's the snag.

408(k), in particular, requires a SEP-IRA to be established for each "employee" who has met the age and service requirements. 408(k)(2). A person who is a leased employee per 414(n) would be such an "employee."

[Gary Lesser]

In other words, if an employer has leased employees who are required to be treated as its own employees under Code Section 414(n), the leased employees must be treated as employees of the employer for purposes of the employer's eligibility to establish a SIMPLE. [iRC § 414(b), 414©, 414(m), 414(n), 414(o)]

[Gary Lesser]

Ditto for a SEP arrangement. In both cases, be sure the document actually provides for the exclusion of leased employees (most don't)