I am working on a return that is new to me this year. The TP told me he works from his home and is self employed. The income from this SE, however, has been reported on a W-2... Now I see that he has a SEP/IRA set up and has contributed $24,206.76 for 2006. I thought a SEP was only for self employed. I am a bit stuck on how to handle this contribution. The amount contributed would suggest a SEP, however I think he may only qualify for an IRA. His W-2 does not indicate any retirement plan. Please advise me... Thanks!
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Confusing
It would seem to be true, that you could only open a SEP if you are self employed. Could it be the t/p thought he was independent because he is working from home. the W-2 contradicts that he is independent and self employed. He is just confused according to the status of his working relationship with "Employer"?
In some regards it is to the t/p advantage that he is on a W-2 form as he will not have to pay social security tax (both sides) and medicare tax (both sides). That could be a lot of money, plus he still has the advantage of unemployment and state disability (if offered in your state).
so t/p will need to do something about his SEP IRA really soon to avoid any over contribution penalties, like convert to an IRA max, and possibly a ROTH IRA max for the year 2006. And then maybe move some of the funds from a 06 contribution to 07 contribution.
Seems like you need some more information prior to 4/17.
Sandy -
Sep/ira
An employer can set up a SEP and contribute for the employee, in fact if someone is self-employed he is required to contribute the same percentage for the employee as he contributes for himself. As they previous poster stated you need to find out the facts for sure.Comment
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Statutory employee
Could this person be a statutory employee? He would get a w-2 but could be considered self employed. I think that is right.
Brain is too tired to think very clear at this time. but I think that is the way it goes.
Linda FComment
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