How Do I Report SIMPLE IRA Contributions on a W-2?

A Savings Incentive Match Plan for Employees IRA (SIMPLE IRA) is an employer-sponsored retirement plan, similar to a 401(k), in which employees and employers can both contribute to the employee's plan. SIMPLE IRAs are available to employers with up to 100 employees. Employers who offer SIMPLE IRAs are required by the Internal Revenue Service (IRS) to report certain information on the W-2 forms of participating employees.

How SIMPLE IRAs Work

SIMPLE IRAs are designed for small businesses as a way to offer a retirement savings plan for employees. To offer a SIMPLE IRA to an employee, a business cannot have any other retirement plan.

For employees who opt to contribute, their contributions are made via salary deferral. The annual contribution limit for a SIMPLE retirement account is $13,500 for 2021 and $14,000 for 2022. Participants aged 50 or older may contribute up to $3,000 in catch-up contributions per year.

Employers are required to contribute annually and may choose between making matching contributions based on employee contributions, called elective contributions, or through non-elective contributions. Employers have two options. They can:

• Match up to 3% of a participant employee's annual salary and contribute each year to the plan, or
• Make non-elective contributions equal to 2% of each eligible employee's pay—up to $290,000 for 2021 ($305,000 for 2022)—regardless of whether the employee makes elective deferrals.

Employees are fully vested in their SIMPLE IRA from its inception. However, in-service withdrawals are included in income and subject to ordinary taxation. Also, participants may be subject to an IRS early withdrawal penalty of 10% if under the age of 59½. If withdrawals are taken within the first two years of issue, the penalty is 25%.

Simple IRA W-2 Reporting Requirements

As the SIMPLE IRA works similarly to other employer-sponsored retirement plans, such as a 401(k) plan, salary deferral contributions must be reported on each participant employee's W-2.

On Form W-2 for employee compensation, SIMPLE IRA contributions made by the employee are deducted from the "wages, tips, and other compensation" box, and box 13 "retirement plan" is selected.

The dollar amounts of the total annual contributions are not specifically listed but are calculated and reported by the taxpayer. SIMPLE IRA contributions are not subject to federal income tax withholding. However, the salary reduction contributions are subject to Social Security, Medicare, and federal unemployment (FUTA) taxes, but nonelective and matching contributions are not subject to these taxes. Contribution amounts are added back into earnings for these boxes, which are numbers 3 and 5, respectively, on Form W-2.

Employee participants report their contributions for the year on Form 1040, Schedule 1, Line 28.

Meanwhile, the employer receives a deduction for any matching contributions made to the participant on Schedule C of the company's business tax return. Since the contributions are deductible for the employer, the company's matching dollars are not reported on the W-2 form for the employee.