I recently discovered I miscalculated my max contribution to my SEP for 2019 and 2020 so I MAY have excess contributions in 2019 and 2020. See What is the contribution limit for self-employed person to their SEP-IRA? for details.
Certainly my deduction was too high for 2019 and 2020 so I should file amended returns for those. However, in trying to figure out wtf forms I'm supposed to file and penalty taxes to pay, it occurred to me that instead of treating them as excess, I may be able to treat my contribution made in FY2020 (NB: as a single deposit) originally for TY2019 as partly for TY2019 and partly for TY2020, and likewise the FY2021 contribution as partly TY2020 and partly TY2021. (Of course with some adjustment in TY2020 due to rollover from TY2019.) Does this seem legit so I can avoid any penalties and just pay the increased tax due to my excess deduction?
The IRS requires contributions to a SEP-IRA to be reported on the Form 5498 for the year they are actually deposited to the account, regardless of the year for which they are made.
In form 5498 instructions:
Show SEP (box 8) and SIMPLE (box 9) contributions made in 2022, including contributions made in 2022 for 2021, but not including contributions made in 2023 for 2022
So the brokerage doesn't report which tax year a contribution is for, only when the contribution was made.
In my proposal, I won't be taking any excess contributions out, so I won't even need to contact the brokerage.
Here are some example numbers. I made the SEP contributions of 25000 and 23750 in 2020 and 2021 (before my filing deadline), and I haven't filed for 2021 yet.
|Year||SE Income||SE tax||Net income||Actual SEP cont (25% of SE income)||True maximum (20% of net income)||Carryover|
|2021||90000||12717||83642||4222 (new) + 12506 (carried)||16728|
Edit: Pub 560 (referenced by the accepted answer) probably does answer my question pretty definitively. Although it doesn't mention amending previous returns, it says:
Carryover of Excess Contributions
If you contribute more to a plan than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. See Deduction Limit for Self-Employed Individuals, earlier. The amount you carry over and deduct may be subject to the excise tax discussed next.
And because it came up in the comments, there's also this bit in Pub 560:
When Contributions Are Considered Made
You generally apply your plan contributions to the year in which you make them. But you can apply them to the previous year if all the following requirements are met.
- You make them by the due date of your tax return for the previous year (plus extensions).
- The plan was established by the end of the previous year.
- The plan treats the contributions as though it had received them on the last day of the previous year.
- You do either of the following. a. You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. b. You deduct the contributions on your tax return for the previous year.