IRS

IRS Seeks Comments on SIMPLE IRA Plan Documents and Notice 98-4

The IRS has released very little guidance on SIMPLE IRA plans since the release of Notice 98-4. Scheduled to be published in tomorrow’s Federal Register is an IRS request for comments, in which the IRS seeks public input on the SIMPLE IRA plan documents and Notice 98-4. The document for which it seeks comments are Form 5304-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)—Not for Use With a Designated Financial Institution, and Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)—for Use With a Designated Financial Institution.

Notice 98-4 contains SIMPLE IRA plan guidance that answers many general questions. Forms 5304-SIMPLE and 5305-SIMPLE are IRS model employer-level documents used to adopt SIMPLE IRA plans. Employers may elect to use the 5304-SIMPLE when a designated financial institution (i.e., the single organization where all plan contributions are forwarded) is not named, and Form 5305-SIMPLE when one is named. Notice 98-4 provides guidance on SIMPLE plans beyond that contained in Internal Revenue Code section 408(p).

Written comments are due to the IRS on or before February 4, 2019. The request for comments provides details on how to submit the comments.

 


403(b) Plan Transition Relief for Elective Deferral “Once in, Always in” Rule

The IRS has released Notice 2018-95, which provides transition period relief from the “once in always in” (OIAI) condition for excluding part-time employees (i.e., employees who normally work fewer than 20 hours a week) from making elective deferrals under a 403(b) plan.

The 403(b) plan exclusion rules found under Treasury Regulation 1.403(b)-5(b)(4) state, in part, that an employee may be excluded if the employee is reasonably expected to work less than 1,000 hours in the employee’s first year of employment. For subsequent years, the employee must have actually worked fewer than 1,000 hours in the preceding 12-month period. Most crucial is the OIAI rule, which states that once a participant does not meet the conditions for exclusion as previously stated, the employee may no longer be excluded under the part-time exclusion. That is, once eligible to defer, an employee cannot lose this eligibility due to the part-time exclusion, even if he works less than 1,000 hours in a preceding 12-month period.

In Notice 2018-95, the IRS provides transition period relief for 403(b) plans that have not followed the OIAI rule (i.e., have been excluding participants as part-time after they became eligible).

The relief stems from comments related to the pre-approved 403(b) plan Listing of Required Modifications (LRMs). The LRMs address the OIAI rule, stating that “once an Employee becomes eligible to have Elective Deferrals made on his or her behalf under the Plan…the Employee cannot be excluded from eligibility…in any later year under this standard.” Commenters requested transition relief based on this LRMs language, claiming that many employers were not aware that the OIAI rule existed.

The notice provides relief for taxable years beginning after December 31, 2008, and ending on the last day of the last exclusion year that ends before December 31, 2019. During this period, plans will not be treated as failing to satisfy the conditions of the part-time exclusion merely because the plan was not operated in compliance with the OIAI rule. The notice goes on to provide examples, and also establishes a “fresh start” opportunity for plans once the relief period expires, requiring plans to follow the OIAI rule for exclusion years beginning on or after January 1, 2019.


IRS Explains Reliance on Opinion and Advisory Letters for 403(b) Plans

The IRS has provided FAQs at its website that explain opinion and advisory letter reliance regarding its relatively new program under which certain employers may establish 403(b) plans using a pre-approved plan document.

Because the IRS generally is no longer issuing rulings or determination letters on individually designed plans, the importance of pre-approved plans has increased. 403(b) plans can be established as prototype or volume submitter plans.

The FAQs describe eligible employers, what opinion and advisory letters are, and the reliance on an IRS opinion or advisory letter.


IRS Issues Tax Relief for California Wildfire Victims

The IRS has issued News Release CA-2018-13, announcing tax-related deadline relief for certain areas in the State of California suffering damage from recent wildfires. The relief, based on Treasury Regulation 301.7508A-1(c)(1)), applies to various tax-related acts whose deadlines can be extended due to a disaster declaration. These include completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under the above-described regulation.

The announced deadline relief currently applies to Butte, Los Angeles, and Ventura counties. For those covered by this guidance, covered tax-related deadlines falling on or after November 8, 2018, and before April 30, 2019, are extended to April 30, 2019.

The automatic relief applies to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area that is injured or killed as a result of the events is also entitled to deadline relief. Affected taxpayers who reside or have a business located outside the covered disaster areas are required to call the IRS disaster hotline at 866-562-5227 to request relief.

 


Tax-Related Deadline Relief for Hurricane Michael Victims in Alabama

The IRS has released News Release AL-2018-006 describing tax-related deadline relief for victims of Hurricane Michael in certain areas of Alabama. The news release describes the relief provided in Treasury Regulation 301.7508A-1(c)(1)) that applies to various tax-related acts whose deadlines can be extended by a disaster declaration. This includes completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under the above-described regulation.

Currently, the announced deadline relief applies to the Alabama counties of Geneva, Henry, Houston, and Mobile. Under this guidance, covered tax-related deadlines that fall on or after October 10, 2018, and before February 28, 2019, are extended to February 28, 2019.

The automatic relief applies to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who was injured or killed as a result of the events is also entitled to deadline relief. Affected taxpayers who reside or have a business located outside the covered disaster areas are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.

 


2019 COLA Adjustments for IRAs and Retirement Plans

The IRS issued Notice 2018-83 containing the 2019 IRA and retirement plan limitations as adjusted for cost-of-living. The IRS contribution limit is increasing to $6,000 for 2019, and most of the income limitations associated with Roth IRA eligibility and Traditional IRA deductions increase. Several retirement plan limitations increase as well. The 401(k) deferral limit (IRC Sec. 402(g)) will be to $19,000 for 2019.

2019 IRA Contribution Limitations

  • Traditional and Roth IRA contributions: $6,000 ($5,500 for 2018)
  • Traditional and Roth IRA catch-up contributions: $1,000 (not subject to COLA adjustments)
  • IRA deductibility phase-out range for single taxpayers that are active participants in retirement plans: $64,000 to $74,000 (was $63,000 to $73,000 for 2018)
  • IRA deductibility phase-out range for married joint filing taxpayers that are active participants in retirement plans: $103,000 to $123,000 (was $101,000 to $121,000 for 2018)
  • IRA deductibility phase-out range for non-active participants who are married to active participants in retirement plans: $193,000 to $203,000 (was $189,000 to $199,000 for 2018)
  • Roth IRA income limit phase-out range for determining contribution eligibility for married joint filers: $193,000 to $203,000 (was $189,000 to $199,000 for 2018)
  • Roth IRA income limit phase-out range for determining contribution eligibility for single filers and heads-of-households: $122,000 to $137,000 (was $120,000 to $135,000 for 2018)

2019 Retirement Plan Limitations

  • Annual additions under IRC Sec. 415(c)(1)(A) for defined contribution plans: $56,000 ($55,000 for 2018)
  • Annual additions under IRC Sec. 415(b)(1)(A) for defined benefit pension plans: $225,000 ($220,000 for 2018)
  • Annual IRC Sec. 402(g) deferral limit for 401(k), 403(b) and 457(b) plans: $19,000 ($18,500 for 2018)
  • Catch-up contributions to 401(k), 403(b) and 457(b) plans: $6,000 (unchanged)
  • Annual deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $13,000 ($12,500 for 2018)
  • Catch-up contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,000 (unchanged)
  • IRC Sec. 401(a)(17) compensation cap: $280,000 ($275,000 for 2018)
  • Highly compensated employee definition income threshold: $125,000 ($120,000 for 2018)
  • Top-heavy determination key employee definition income threshold: $180,000 ($175,000 for 2018)
  • SEP plan employee income threshold for benefit eligibility: $600 (unchanged)

Social Security Taxable Wage Base

The Social Security Administration announced in mid-October that the 2019 limitation for the taxable wage base increases from $128,400 to $132,900 for 2019.

Retirement Savings Tax Credit

Taxpayers who make contributions to IRAs and/or salary deferrals under retirement plans may qualify for an income tax credit if their income is under certain amounts. Contributions of up to $2,000 may be eligible for credits that range from 10 to 50 percent of the amount contributed. Eligibility is based on income and tax filing status as provided in the instructions for Form 8880, Credit for Qualified Retirement Savings Contributions. The applicable income limits are subject to cost-of-living adjustments as well.

The maximum income thresholds in all categories for this credit will increase for 2019. For 2019, taxpayers with adjusted gross income that exceeds $64,000 for joint filers, $48,000 for head of household, and $32,000 for all other filers will not qualify for a tax credit. See Notice 2018-83 for the specific income limitations based on tax filing status.

 


IRS Proposes Plan to Combat 402(g) Excess Contributions

The IRS announced that it would take action to combat excess elective deferrals made by participants to IRC Sec. 401(k) plans.

The announcement comes in response to a report from the Treasury Inspector General for Tax Administration, which found that the IRS could improve its oversight of 401(k) plan administrators and taxpayers to ensure excess deductions are not claimed.

The report states that excess deferral contributions were made by approximately 14,600 taxpayers in 2014. As a result, the IRS forewent $41 million in tax collections for that year. The report indicates that this was a result of plan administrators who are unfamiliar with the requirements of IRC Sec. 402(g) and of a lack of oversight of taxpayers who contribute to multiple plans.

To combat these excesses, IRS intends to provide additional educational material to plan administrators by January 15, 2020. Additionally, IRS will conduct examinations of affected individual taxpayers, with a focus on those taxpayers who participate in multiple plans, to be complete by October 15, 2020. IRS will use the results of the examinations to determine if any further action is warranted.


Tax-Related Deadline Relief for Victims of Severe Storms in Wisconsin

The IRS has issued News Release WI-2018-07 announcing tax-related deadline relief for certain Wisconsin residents who are victims of recent storms, tornadoes, straight-line winds, flooding, and landslides that took place beginning on August 17, 2018. In addition to postponement of tax return deadlines falling within dates identified in the news release, the relief includes postponement of deadlines for completing certain time-sensitive, tax-related acts specified in Treasury Regulation 301.7508A-1(c)(1).

These acts include completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under this regulation. For those who qualify, such deadlines falling on or after August 17, 2018, and on or before December 17, 2018, are postponed to December 17, 2018.

The areas identified as directly qualifying for relief are Crawford, Dane, Juneau, La Crosse, Monroe, Richland, Sauk, and Vernon counties. The relief applies specifically to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who is injured or killed as a result of the events is also entitled to deadline relief.

Affected taxpayers who reside in or have a business located outside the covered disaster area are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.


Tax-Related Deadline Relief for Hurricane Michael Victims

The IRS has released a pair of news releases describing tax-related deadline relief available to victims of Hurricane Michael, including those automatically eligible for that relief. News Release FL-2018-04 describes the relief provided in Treasury Regulation 301.7508A-1(c)(1)) that applies to various tax-related acts whose deadlines can be extended by a disaster declaration. This includes completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under the above-described regulation.

Currently, the announced deadline relief applies only to the Florida counties of Bay, Franklin, Gulf, Taylor, and Wakulla. However, the IRS indicates that if the Hurricane Michael disaster declaration is broadened by the Federal Emergency Management Agency (FEMA) to include other areas of Florida or other states, the same relief will apply there. Under this guidance, covered tax-related deadlines that fall on or after October 7, 2018, and before February 28, 2019, are extended to February 28, 2019.

The automatic relief applies to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who was injured or killed as a result of the events is also entitled to deadline relief. Affected taxpayers who reside or have a business located outside the covered disaster areas are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.

The second guidance item, News Release IR-2018-199, specifically addresses tax returns, including business income tax return filing deadlines and tax payments; the same extended deadline applies.