Question on a SIMPLE-IRA employer match on severance and vacation pay

[ChanHol]

What is the name of your state (only U.S. law)? UT

At the end of October, my employment was involuntarily terminated. The day after I was notified of termination, I received a direct deposit of my final paycheck (just under $4,000) and the value of my unused vacation time that I had accumulated (just over $6,500), less withholding taxes. The company paid me severance payments in November, December, and January of 2013. Prior to being terminated, I had contributed $10,000 to my SIMPLE-IRA acct for 2012 ($1,000/mo for 10 months).

My questions are:
(1) Should there have been an employer match (3%) on the value of my vacation (3% of $6,500)? There was none.
(2) Should there have been employer matching contributions on my severance payments (3% of $8,000/mo)? Again, there was none.
(3) Should I have been allowed to make an employee contribution in January 2013, since I am no longer an employee, but am receiving more than $5,000 in compensation in 2013, and if so, can that be rectified (since I was not given the opportunity, and no contribution was made)?

I have researched this everywhere online, including the IRS website. The SIMPLE plan provided by the IRS says that the match is on "Section 6051(a)(3) compensation subject to income tax withholding." Income taxes were withheld on all compensation (final paycheck, vacation time payout, severance payments for Nov & Dec 2012, and severance payment for Jan 2013.)

It seems to me that either these payments should have been subject to both withholding and the 3% match, or they should have been subject to neither. However, I am by no means an expert, and realize that logic rarely rules.

Many kind thanks for assistance.

 

[LdiJ]

What is the name of your state (only U.S. law)? UT

At the end of October, my employment was involuntarily terminated. The day after I was notified of termination, I received a direct deposit of my final paycheck (just under $4,000) and the value of my unused vacation time that I had accumulated (just over $6,500), less withholding taxes. The company paid me severance payments in November, December, and January of 2013. Prior to being terminated, I had contributed $10,000 to my SIMPLE-IRA acct for 2012 ($1,000/mo for 10 months).

My questions are:
(1) Should there have been an employer match (3%) on the value of my vacation (3% of $6,500)? There was none.
(2) Should there have been employer matching contributions on my severance payments (3% of $8,000/mo)? Again, there was none.
(3) Should I have been allowed to make an employee contribution in January 2013, since I am no longer an employee, but am receiving more than $5,000 in compensation in 2013, and if so, can that be rectified (since I was not given the opportunity, and no contribution was made)?

I have researched this everywhere online, including the IRS website. The SIMPLE plan provided by the IRS says that the match is on "Section 6051(a)(3) compensation subject to income tax withholding." Income taxes were withheld on all compensation (final paycheck, vacation time payout, severance payments for Nov & Dec 2012, and severance payment for Jan 2013.)

It seems to me that either these payments should have been subject to both withholding and the 3% match, or they should have been subject to neither. However, I am by no means an expert, and realize that logic rarely rules.

Many kind thanks for assistance.

The bolded isn't even a logical statement. You know that you have to pay tax on the vacation and severance pay whether your employer contributes to a SIMPLE plan or not.

 

[ChanHol]

The bolded isn't even a logical statement. You know that you have to pay tax on the vacation and severance pay whether your employer contributes to a SIMPLE plan or not.

I didn't say "have to pay tax" or comment on whether the income was "taxable", but rather, the bolded statement's logic is predicated on the IRS's SIMPLE rule, "For an individual who is not self-employed, compensation means: wages, tips, and other compensation from the employer subject to income tax withholding under section 3401(a)..." So, the linkage is "subject to income tax withholding".

But, this is a distraction to the real question at hand, which is whether or not (either generally speaking, or in my detailed scenario), a 3% matching contribution should have been made on the amounts paid for vacation and/or on the subsequent severance payments. And, whether I should have been allowed to make SIMPLE contributions from the monthly severance payments in Nov/Dec, and in 2013 for 2013.

 

[davew128]

Had you bothered to actually look at the code section you posted, you would have found the reason why you were wrong. 3401(a) (4) describes why the amounts paid in 2013 aren't covered. As for payments before the end of the year I do believe you are correct with regards to matching. However since the due date for matching payments (which varies depending on the type of entity) hasn't passed, you don't have a case.

 

[ChanHol]

Had you bothered to actually look at the code section you posted, you would have found the reason why you were wrong.

Well, it's clear that I misunderstood the purpose of this forum. As a non-expert, it took quite a lot of research to get to this point. And I do not have the background to easily understand the nomenclature used in this world.

As for payments before the end of the year I do believe you are correct with regards to matching. However since the due date for matching payments (which varies depending on the type of entity) hasn't passed, you don't have a case.

I'm not sure what this means that "I don't have a case"; my goal is not to have cause for a lawsuit, but rather to receive the appropriate compensation. In the event that I "don't have a case," is this the same as "the problem can still be fixed?" or is it the case that I need to wait until I do have a case?

 

[davew128]

Nomenclature scmoneclature. You cited a statute. That statute stated what was eligible. Had you read it (google is your friend) you could have figured it out. It wasn't legalese.

As for your immediate problem, YOUR EMPLOYER ISN'T YET REQUIRED TO MAKE THE MATCH.

 

[ChanHol]

Dave,
I don't understand the attitude, but I do sincerely appreciate your answers. FYI, what I quoted was on the form to create a SIMPLE-IRA plan. The IRS has that on their website, not the statute as far as I could tell. I couldn't find the statute to read. That's why I didn't bother--it's not so much that I'm a lazy slob as I couldn't find it.
I don't think the employer is going to make the match, and based on the way my old boss looked at things, I'm sure that's the calculation she's making. I think the functional answer is this: right or not, I can't really pursue a $1000 claim, legally.

 

[davew128]

I really don't understand your problem. You posted a tax law code section. All you had to do was Google it and find a half dozen free sites that post the text of the law. The answer is written in the law.

As for the match, your former employer has until the extended due date of their tax return to make that match. in other words, you have to wait another six months before you have a valid complaint.