Page 187 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
the plan is immediate. The downside to this plan from an
employee’s perspective is that the excise tax assessment for a
withdrawal within the first two years of participation is 25
percent, rather than the usual 10 percent that is assessed for
other types of IRA accounts.
• Spousal IRA. This is an IRA that is funded by one spouse on
behalf of the other, but only if the spouse being funded has
less than $2,000 in annual taxable income. This contribution
is only valid if the couple files a joint tax return for the year
in which the contribution took place.
Simplified Employee Pension (SEP). This plan is available primarily
for self-employed persons and partnerships, but is available to all types of

business entities. It can be established only if no qualified retirement plan
is already in use.The maximum contribution that an employer can make
is the lesser of 15 percent of an employee’s compensation, or $30,000.
The amount paid is up to the discretion of the employer.The contribu-
tion is sent at once to an IRA that has been set up in the name of each
employee,and which is owned by the employee.Once the money arrives
in the IRA, it falls under all of the previously noted rules for an IRA.

Sick/Disability Pay
A typical company benefit plan allows for the accrual of a fixed number
of sick days per year.When an illness forces an employee to stay home,
the sick time accrual is used in place of work hours, so an employee is
compensated for a normal number of working hours during his or her
time off. Once all the accrued sick time is used up, an employee can use
any remaining vacation time in order to continue being paid, but there-

after must take an unpaid leave of absence.
Additional wages may be paid from either short-term or long-term
disability insurance plans, which are generally offered through third-
party insurance providers. If an employer pays the entire cost of these

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