If a partnership has a SEP plan do they have to cover all employees? Can each partner have their own SEP that is paid outside of the partnership or does it have to be at the partnership level?
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two questions, several answers
all "eligible" employees must be covered. an eligible employee is defined in the SEP adoption agreement, but the default is any employee who has been an employee for 3 of the last 5 years and annual earnings in excess of $450 during that time.
If the partner is taking GP from the partnership than they have SE earnings and can set up their own SEP independent of the partnership, subject to SE earnings limits. if they are not taking GP from the partnership than there is really no way for them to participate because they would not be getting a W-2, therefore there are no W-2 earnings to calculate contributions from.
hope this helps! -
A general partner is subject to SE tax on all profit allocated to him, including guaranteed payments, and therefore has earnings that qualify for SEP contributions.Originally posted by JoshinNC
See Pub 560, page 21, for worksheet to calculate the contribution.Last edited by OldJack; 03-31-2006, 10:07 AM.Comment
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yes, Jack, that's correct
I had LLC on the brain and was thinking that the members would be limited, and not subject to SE on distributive earnings.
Thanks for the clarification!Comment
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So then... its got to happen at the partnership level. Is that correct? Meaning they would not be able to each set up their own SEP taken on their individual 1040?Comment
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no, they can create their own plan
provided that they earnings from self employment. then they can contribute up to 20% of their self-employment income after reducing it by 1/2 of self employment taxComment
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