“When is the deadline for depositing employee salary deferrals into the plan?” is a question we often hear that has a simple answer.
However, the company contributions, such as matching and profit sharing contributions, is a more complex answer. There are different rules depending on the purpose of the deadline. One set of regulations may specify one deadline for compliance purposes, but another set specifies a different deadline for deduction purposes.
In this Bulletin, we will try to make sense of this complex answer by reviewing some of the frequently asked questions about different deadlines.
FAQ: When does a company have to deposit contributions in order to take them as a tax deduction for the year?
A: In order for a company to deduct a contribution for a given year, it must be deposited by the due date (including extensions) of the company tax return.
FAQ: Does that mean that if the deposit is not made by the due date of the tax return that it cannot be deducted?
A: Fortunately, no. The contribution can still be deducted. However it must be deducted on the subsequent year’s return.
FAQ: If we file the company return prior the due date of the company tax return, do we still have until the actual due date to make the deposit?
A: Yes. The deposit deadline is based on the due date (with extensions) of the tax return, not the date it is actually filed. However, please note that if the actual deposit is not made by the due date of the return and the amount of the deposit is different than anticipated, the company would need to file an amended return to adjust the deduction that was claimed. That is why we recommended that the deposit be made by the date of filing.
FAQ: Can we deposit the company contribution throughout the year?
A: It is specific to your plan’s provisions. If there are conditions in order to share in the contribution for the year, such as employment on the last day of the plan year. It is impossible to know if this, or other conditions will be met. Therefore, while it is permissible to make contributions throughout the year , we strongly recommended that plans with allocation conditions wait until the end of the year.
FAQ: How late can a company deposit an employer contribution and still have it count against the overall limit for a given year?
A: With a few exceptions, the limitation year is the same as the plan year. In order for company contributions to be treated as an annual addition for a given year, the contribution must be deposited no more than 30 days after the due date of the company tax return (with extensions) for that given year.
FAQ: Are there any special deadlines for depositing the company contribution for a safe harbor 401(k) plan?
A1: The safe harbor non-elective contribution must be deposited no later than the last day of the plan year following the plan year to which it relates, e.g. December 31, 2020 for the 2019 safe harbor non-elective contribution.
A2: For safe harbor match plans, the deposit deadline depends on how frequently your plan document requires the match to be calculated. If the match is calculated based on full year compensation and deferrals, it is subject to the same deposit deadline as the safe harbor non-elective contribution.
A3: If it is calculated more frequently (such as each pay period), it must be deposited by the end of the next calendar quarter.
FAQ: Nondiscrimination tests may require making additional contributions. Do these contributions have different deadlines?
A: Yes. Top heavy plans, QNECs or QMACs for a failed ADP/ACP test, plans that failed the minimum coverage test all have differing deadlines than the standard. We recommend you consult an ERISA specialist if your plan has any of these situations.
This publication is provided for educational and informational purposes only and does not contain legal or tax advice. Accordingly, you should not act on any information provided without first consulting legal counsel and/or a professional tax advisor.