The IRS has released FAQs on many sections of the Secure 2.0 Act. Several of the sets of FAQs explain how to report certain amounts on Form W 2. The following provisions of the Secure 2. 0 Act could affect amounts reported on Form W 2, de minimis financial incentives, Roth Simple and Roth SEP IRAs, and optional treatment of employer non-elective or matching contributions as Roth contributions.
De minimis financial incentives for 401k and 403b enrollment
For plan years beginning after December 29, 2022, employers may offer a de minimis financial incentive, not paid for with plan assets, such as gift cards in small amounts, to incentivize employees to contribute or enroll in a 401k or 403b plan. The FAQs specify that a financial incentive is a de minimis financial incentive only if it does not exceed 250 in value.
If an employer provides a de minimis financial incentive to an employee, that incentive is includable in the employee’s gross income as wages and is subject to withholding and reporting requirements for employment tax purposes. An employer that maintains a SEP or SIMPLE IRA plan can offer participating employees the option to designate a Roth IRA as the IRA to which contributions under the arrangement or plan are made.
Salary reduction contributions to Roth accounts
Salary reduction contributions to a Roth SEP or Roth SIMPLE IRA are subject to federal income tax withholding and FICA and FUTA taxes. Similar to the treatment for an employee’s Roth 401k contributions, these contributions should be included in boxes 1, 3, and 5, or box 14 for railroad retirement taxes of Form W 2.
The contributions should be reported in Box 12 with Code F for a SEP IRA or Code S for a SIMPLE IRA. Employer matching and non-elective contributions to a Roth SEP or Roth SIMPLE IRA are not subject to withholding for federal income tax or FICA and FUTA taxes. These contributions must be reported on Form 1099 R for the year in which the contributions are made to the employee’s Roth IRA.
The total amounts are listed in boxes 1 and 2A of Form 1099 R, with code 2 or 7 in box 7, and the IRA SEP Simple Check box is checked.
Treatment of matching contributions
Employers offering 401k, 403b, and 457b defined contribution plans may provide participants with the option of receiving matching contributions on a Roth basis, effective December 29, 2022. These contributions are not subject to withholding for federal income tax and generally are not subject to withholding for Social Security or Medicare tax.
However, designated Roth non-elective contributions that are contributed to an eligible government plan must be fully vested at the time the contribution is allocated to a participant’s account. This includes amounts that would be treated as matching contributions under Section 401 subsection M if the plan were a qualified plan.
Unlike Employee Elective Deferral Roth Contributions, Employer Roth Non-Elective and Matching Contributions must be reported on Form 1099 R for the year in which they’re allocated to an individual’s account. These contributions are reported in Boxes 1 and 2A of Form 1099 R. Form 1099 R and code G is used in Box 7.
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