Enrolled Agent Jobs – Correcting Employer Mistakes in SIMPLE IRA Plan

Tax practitioners who obtain the enrolled agent designation provide a large number of services beyond tax return preparation. Business owners in particular often seek the advice of enrolled agents to examine their operations for compliance with tax rules. An example of enrolled agent jobs is to review SIMPLE IRA retirement plans and assist in correcting any errors.

A business that establishes a SIMPLE must have less than 100 employees that are not covered by a collective bargaining agreement with retirement benefits. Each worker who earned $5,000 with the business during any of the two preceding years and is expected to earn that much in the current year is included in the SIMPLE IRA plan.

An enrolled agent is an ideal consultant for a business with a SIMPLE because the basic features of these plans are studied for the EA exam. Employers have two options for making contributions to a SIMPLE. The first choice is contributing 2 percent of compensation to each eligible employee. The second option is making contributions that match employee contributions from wage deferral – up to three percent of compensation.

Because the annual employee contribution maximum is subject to cost-of-living adjustment, the subject is important to review in yearly EA continuing education. Also, an employer can reduce the 3 percent to a lower percentage for up to 2 out of 5 calendar years – but never lower than 1 percent.

A common matter regarding a SIMPLE that a business will rely upon someone with enrolled agent training to identify is whether all eligible employees received correct employer contributions. Every employee who satisfies the eligibility requirements must receive contributions at the same percentage as co-workers. The plan cannot require employment on a particular day, such as the last day of the year.

To find a mistake using EA guidelines, employee payroll information is reviewed. This includes any employee who terminated employment during the year. Contribution calculations for all plan participants are verified. Any incorrect contribution by the employer requires correction. Excess contributions are distributed tax-free to the employee. Insufficient contribution amounts are sent to the employee’s account along with an adjustment for earnings.

If an eligible employee was not provided with the opportunity to make elective contributions from wages, the corrective action must assume that the employee would have contributed the full 3 percent of compensation. The earnings adjustment is calculated from the day a contribution would have been made. These calculations are complex, which is why a business values the help of an enrolled agent to follow an approved process. An EA may use the IRS self-correction program for the business to correct insignificant mistakes and avoid an IRS penalty. But penalties are assessed for errors discovered by an IRS audit. Therefore, annual retirement plan review is an important service for enrolled agents to market in the business community.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.