When are Contributions Due?

IRS and DOL have specific timeframes for when employee and employer contributions must be deposited to the Plan in order for it to be considered timely deposited and, in the case of an employer contribution, a deductible business expense for a particular fiscal year. 

Deposit dates for employee deferrals and loan repayments are straightforward.  If your Plan is considered “small” (less than 100 participants), the IRS provides a safe harbor rule:  the deposit is considered timely if it is posted to employee accounts on or before the seventh (7th) business day following payroll check date.  For example, your pay period ends April 7th.  The check date is April 14th.  The funds must be deposited to the Plan on or before April 25th, the 7th business day after check date. 

If your plan is considered “large” (100 participants or more), the deposit is considered timely if it is posted to employee accounts as soon as practical.  A general rule of thumb is 2-3 business days.  When determining the “as soon as practical”, IRS looks at what has been common practice for the year.  If even one deposit was made within one day of payroll check date, then IRS uses that as the “as soon as practical” and anything outside of one day is considered late.

Deposit dates for employer contributions take a few other items into play.  For example, does your plan document require you to deposit the match each pay period?  Annually?  What tax year do you want to take the deduction on your business’ tax return?  Let’s assume the employer contribution is deposited annually.  Generally, the deposit must be made to the plan by the time the company’s tax return is due, including extensions.

EXAMPLE:

DO Music, Inc. (a C-corporation) wants to make a profit sharing contribution in the amount of $55,000 for the plan year ending 12/31/2022.  It will take the $55,000 deduction on its 2022 tax return.  The tax return is due April 15, 2023.  It filed for an extension, so the return is now due October 15, 2023.

DO Music, Inc. files its return on May 30, 2023.  It deposits the profit sharing contribution of $55,000 to the plan July 1, 2023.  QUESTION:  Is this acceptable?  Should DO Music, Inc. have deposited its $55,000 to the plan on or before May 30, 2023 to take the deduction on its taxes?

Happily, the answer is no.  The IRS, in Revenue Ruling 66-144 allows us to take full advantage of the extension timeframe, even if the business files its return before the extended due date. 

What happens if you realize on December 15, 2023 that you failed to deposit the $55,000?  Is it too late to make the deposit?  Contact your CPA and JM Pension immediately if this happens.  The $55,000 is not considered timely deposited; therefore would not be a deductible business expense for the 2022 plan year.  All may not be lost – it may be an allowable expense for the 2023 year.