What are the consequences to employees if excess contributions are made?
If contributions are made in an amount that is more than is allowed, there are tax implications for the employer and the employees. Excess contributions are included in employees’ gross income. If an employee withdraws the excess contribution, and earnings on such amount, before the due date for filing his/her return, including extensions, the employee will avoid a 6% excise tax imposed on excess SEP contributions in an IRA. Excess contributions left in the employee’s SEP-IRA after that time may result in adverse tax consequences to the employer and the employee. If the employer contributes more than it may deduct, it may be subject to a 10% excise tax.
Related Questions
- Emory Healthcare recently announced that it is cutting matching contributions to employees 403(b) plans in half. Is Emory University planning to cut retirement benefits as well?
- How do highly compensated employees report the return of excess contributions due to a failed discrimination test?
- What are the consequences to employees if excess contributions are made?
