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Hr Block Tax Software

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Hr Block Tax Software

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The Hr Block Tax Software

Hr block tax software 2. Hr block tax software   Simplified Employee Pensions (SEPs) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Setting Up a SEPWhen not to use Form 5305-SEP. Hr block tax software How Much Can I Contribute?Contribution Limits Deducting ContributionsDeduction Limit for Contributions for Participants Deduction Limit for Self-Employed Individuals Carryover of Excess SEP Contributions When To Deduct Contributions Where To Deduct Contributions Salary Reduction Simplified Employee Pensions (SARSEPs)SARSEP ADP test. Hr block tax software Deferral percentage. Hr block tax software Employee compensation. Hr block tax software Compensation of self-employed individuals. Hr block tax software Choice not to treat deferrals as compensation. Hr block tax software Limit on Elective Deferrals Tax Treatment of Deferrals Distributions (Withdrawals) Additional TaxesEffects on employee. Hr block tax software Reporting and Disclosure Requirements Topics - This chapter discusses: Setting up a SEP How much can I contribute Deducting contributions Salary reduction simplified employee pensions (SARSEPs) Distributions (withdrawals) Additional taxes Reporting and disclosure requirements Useful Items - You may want to see: Publication 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4285 SEP Checklist 4286 SARSEP Checklist 4333 SEP Retirement Plans for Small Businesses 4336 SARSEP for Small Businesses 4407 SARSEP—Key Issues and Assistance Forms (and Instructions) W-2 Wage and Tax Statement 1040 U. Hr block tax software S. Hr block tax software Individual Income Tax Return 5305-SEP Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 5305A-SEP Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A SEP is a written plan that allows you to make contributions toward your own retirement and your employees' retirement without getting involved in a more complex qualified plan. Hr block tax software Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. Hr block tax software A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. Hr block tax software SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). Hr block tax software A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but does not need to be set up for excludable employees (defined later). Hr block tax software Eligible employee. Hr block tax software   An eligible employee is an individual who meets all the following requirements. Hr block tax software Has reached age 21. Hr block tax software Has worked for you in at least 3 of the last 5 years. Hr block tax software Has received at least $550 in compensation from you in 2013. Hr block tax software This amount remains the same in 2014. Hr block tax software    You can use less restrictive participation requirements than those listed, but not more restrictive ones. Hr block tax software Excludable employees. Hr block tax software   The following employees can be excluded from coverage under a SEP. Hr block tax software Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Hr block tax software Nonresident alien employees who have received no U. Hr block tax software S. Hr block tax software source wages, salaries, or other personal services compensation from you. Hr block tax software For more information about nonresident aliens, see Publication 519, U. Hr block tax software S. Hr block tax software Tax Guide for Aliens. Hr block tax software Setting Up a SEP There are three basic steps in setting up a SEP. Hr block tax software You must execute a formal written agreement to provide benefits to all eligible employees. Hr block tax software You must give each eligible employee certain information about the SEP. Hr block tax software A SEP-IRA must be set up by or for each eligible employee. Hr block tax software Many financial institutions will help you set up a SEP. Hr block tax software Formal written agreement. Hr block tax software   You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. Hr block tax software You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. Hr block tax software However, see When not to use Form 5305-SEP, below. Hr block tax software   If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. Hr block tax software Keep the original form. Hr block tax software Do not file it with the IRS. Hr block tax software Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. Hr block tax software See the Form 5305-SEP instructions for details. Hr block tax software If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP. Hr block tax software When not to use Form 5305-SEP. Hr block tax software   You cannot use Form 5305-SEP if any of the following apply. Hr block tax software You currently maintain any other qualified retirement plan other than another SEP. Hr block tax software You have any eligible employees for whom IRAs have not been set up. Hr block tax software You use the services of leased employees, who are not your common-law employees (as described in chapter 1). Hr block tax software You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP. Hr block tax software An affiliated service group described in section 414(m). Hr block tax software A controlled group of corporations described in section 414(b). Hr block tax software Trades or businesses under common control described in section 414(c). Hr block tax software You do not pay the cost of the SEP contributions. Hr block tax software Information you must give to employees. Hr block tax software   You must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. Hr block tax software An IRS model SEP is not considered adopted until you give each employee this information. Hr block tax software Setting up the employee's SEP-IRA. Hr block tax software   A SEP-IRA must be set up by or for each eligible employee. Hr block tax software SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. Hr block tax software You send SEP contributions to the financial institution where the SEP-IRA is maintained. Hr block tax software Deadline for setting up a SEP. Hr block tax software   You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year. Hr block tax software Credit for startup costs. Hr block tax software   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2013. Hr block tax software For more information, see Credit for startup costs under Reminders, earlier. Hr block tax software How Much Can I Contribute? The SEP rules permit you to contribute a limited amount of money each year to each employee's SEP-IRA. Hr block tax software If you are self-employed, you can contribute to your own SEP-IRA. Hr block tax software Contributions must be in the form of money (cash, check, or money order). Hr block tax software You cannot contribute property. Hr block tax software However, participants may be able to transfer or roll over certain property from one retirement plan to another. Hr block tax software See Publication 590 for more information about rollovers. Hr block tax software You do not have to make contributions every year. Hr block tax software But if you make contributions, they must be based on a written allocation formula and must not discriminate in favor of highly compensated employees (defined in chapter 1). Hr block tax software When you contribute, you must contribute to the SEP-IRAs of all participants who actually performed personal services during the year for which the contributions are made, including employees who die or terminate employment before the contributions are made. Hr block tax software Contributions are deductible within limits, as discussed later, and generally are not taxable to the plan participants. Hr block tax software A SEP-IRA cannot be a Roth IRA. Hr block tax software Employer contributions to a SEP-IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Hr block tax software Unlike regular contributions to a traditional IRA, contributions under a SEP can be made to participants over age 70½. Hr block tax software If you are self-employed, you can also make contributions under the SEP for yourself even if you are over 70½. Hr block tax software Participants age 70½ or over must take required minimum distributions. Hr block tax software Time limit for making contributions. Hr block tax software   To deduct contributions for a year, you must make the contributions by the due date (including extensions) of your tax return for the year. Hr block tax software Contribution Limits Contributions you make for 2013 to a common-law employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000. Hr block tax software Compensation generally does not include your contributions to the SEP. Hr block tax software The SEP plan document will specify how the employer contribution is determined and how it will be allocated to participants. Hr block tax software Example. Hr block tax software Your employee, Mary Plant, earned $21,000 for 2013. Hr block tax software The maximum contribution you can make to her SEP-IRA is $5,250 (25% x $21,000). Hr block tax software Contributions for yourself. Hr block tax software   The annual limits on your contributions to a common-law employee's SEP-IRA also apply to contributions you make to your own SEP-IRA. Hr block tax software However, special rules apply when figuring your maximum deductible contribution. Hr block tax software See Deduction Limit for Self-Employed Individuals , later. Hr block tax software Annual compensation limit. Hr block tax software   You cannot consider the part of an employee's compensation over $255,000 when figuring your contribution limit for that employee. Hr block tax software However, $51,000 is the maximum contribution for an eligible employee. Hr block tax software These limits are $260,000 and $52,000, respectively, in 2014. Hr block tax software Example. Hr block tax software Your employee, Susan Green, earned $210,000 for 2013. Hr block tax software Because of the maximum contribution limit for 2013, you can only contribute $51,000 to her SEP-IRA. Hr block tax software More than one plan. Hr block tax software   If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $51,000 or 100% of the participant's compensation. Hr block tax software When you figure this limit, you must add your contributions to all defined contribution plans maintained by you. Hr block tax software Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans you maintain. Hr block tax software Tax treatment of excess contributions. Hr block tax software   Excess contributions are your contributions to an employee's SEP-IRA (or to your own SEP-IRA) for 2013 that exceed the lesser of the following amounts. Hr block tax software 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). Hr block tax software $51,000. Hr block tax software Excess contributions are included in the employee's income for the year and are treated as contributions by the employee to his or her SEP-IRA. Hr block tax software For more information on employee tax treatment of excess contributions, see chapter 1 in Publication 590. Hr block tax software Reporting on Form W-2. Hr block tax software   Do not include SEP contributions on your employee's Form W-2 unless contributions were made under a salary reduction arrangement (discussed later). Hr block tax software Deducting Contributions Generally, you can deduct the contributions you make each year to each employee's SEP-IRA. Hr block tax software If you are self-employed, you can deduct the contributions you make each year to your own SEP-IRA. Hr block tax software Deduction Limit for Contributions for Participants The most you can deduct for your contributions to you or your employee's SEP-IRA is the lesser of the following amounts. Hr block tax software Your contributions (including any excess contributions carryover). Hr block tax software 25% of the compensation (limited to $255,000 per participant) paid to the participants during 2013 from the business that has the plan, not to exceed $51,000 per participant. Hr block tax software In 2014, the amounts in (2) above are $260,000 and $52,000, respectively. Hr block tax software Deduction Limit for Self-Employed Individuals If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. Hr block tax software When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions. Hr block tax software The deduction for the deductible part of your self-employment tax. Hr block tax software The deduction for contributions to your own SEP-IRA. Hr block tax software The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. Hr block tax software For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. Hr block tax software To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 5. Hr block tax software Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Hr block tax software Carryover of Excess SEP Contributions If you made SEP contributions that are more than the deduction limit (nondeductible contributions), you can carry over and deduct the difference in later years. Hr block tax software However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year. Hr block tax software If you also contributed to a defined benefit plan or defined contribution plan, see Carryover of Excess Contributions under Employer Deduction in chapter 4 for the carryover limit. Hr block tax software Excise tax. Hr block tax software   If you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. Hr block tax software For information about the excise tax, see Excise Tax for Nondeductible (Excess) Contributions under Employer Deduction in chapter 4. Hr block tax software When To Deduct Contributions When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. Hr block tax software If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. Hr block tax software If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year. Hr block tax software Example. Hr block tax software You are a fiscal year taxpayer whose tax year ends June 30. Hr block tax software You maintain a SEP on a calendar year basis. Hr block tax software You deduct SEP contributions made for calendar year 2013 on your tax return for your tax year ending June 30, 2014. Hr block tax software Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Hr block tax software For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming; partnerships deduct them on Form 1065, U. Hr block tax software S. Hr block tax software Return of Partnership Income; and corporations deduct them on Form 1120, U. Hr block tax software S. Hr block tax software Corporation Income Tax Return, or Form 1120S, U. Hr block tax software S. Hr block tax software Income Tax Return for an S Corporation. Hr block tax software Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Hr block tax software (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Hr block tax software , you receive from the partnership. Hr block tax software ) Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees. Hr block tax software Salary Reduction Simplified Employee Pensions (SARSEPs) A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. Hr block tax software (See the Caution, next. Hr block tax software ) Under a SARSEP, your employees can choose to have you contribute part of their pay to their SEP-IRAs rather than receive it in cash. Hr block tax software This contribution is called an “elective deferral” because employees choose (elect) to set aside the money, and they defer the tax on the money until it is distributed to them. Hr block tax software You are not allowed to set up a SARSEP after 1996. Hr block tax software However, participants (including employees hired after 1996) in a SARSEP set up before 1997 can continue to have you contribute part of their pay to the plan. Hr block tax software If you are interested in setting up a retirement plan that includes a salary reduction arrangement, see chapter 3. Hr block tax software Who can have a SARSEP?   A SARSEP set up before 1997 is available to you and your eligible employees only if all the following requirements are met. Hr block tax software At least 50% of your employees eligible to participate choose to make elective deferrals. Hr block tax software You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. Hr block tax software The elective deferrals of your highly compensated employees meet the SARSEP ADP test. Hr block tax software SARSEP ADP test. Hr block tax software   Under the SARSEP ADP test, the amount deferred each year by each eligible highly compensated employee as a percentage of pay (the deferral percentage) cannot be more than 125% of the average deferral percentage (ADP) of all non-highly compensated employees eligible to participate. Hr block tax software A highly compensated employee is defined in chapter 1. Hr block tax software Deferral percentage. Hr block tax software   The deferral percentage for an employee for a year is figured as follows. Hr block tax software   The elective employer contributions (excluding certain catch-up contributions)  paid to the SEP for the employee for the year     The employee's compensation (limited to $255,000 in 2013)   The instructions for Form 5305A-SEP have a worksheet you can use to determine whether the elective deferrals of your highly compensated employees meet the SARSEP ADP test. Hr block tax software Employee compensation. Hr block tax software   For figuring the deferral percentage, compensation is generally the amount you pay to the employee for the year. Hr block tax software Compensation includes the elective deferral and other amounts deferred in certain employee benefit plans. Hr block tax software See Compensation in chapter 1. Hr block tax software Elective deferrals under the SARSEP are included in figuring your employees' deferral percentage even though they are not included in the income of your employees for income tax purposes. Hr block tax software Compensation of self-employed individuals. Hr block tax software   If you are self-employed, compensation is your net earnings from self-employment as defined in chapter 1. Hr block tax software   Compensation does not include tax-free items (or deductions related to them) other than foreign earned income and housing cost amounts. Hr block tax software Choice not to treat deferrals as compensation. Hr block tax software   You can choose not to treat elective deferrals (and other amounts deferred in certain employee benefit plans) for a year as compensation under your SARSEP. Hr block tax software Limit on Elective Deferrals The most a participant can choose to defer for calendar year 2013 is the lesser of the following amounts. Hr block tax software 25% of the participant's compensation (limited to $255,000 of the participant's compensation). Hr block tax software $17,500. Hr block tax software The $17,500 limit applies to the total elective deferrals the employee makes for the year to a SEP and any of the following. Hr block tax software Cash or deferred arrangement (section 401(k) plan). Hr block tax software Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). Hr block tax software SIMPLE IRA plan. Hr block tax software In 2014, the $255,000 limit increases to $260,000 and the $17,500 limit remains at $17,500. Hr block tax software Catch-up contributions. Hr block tax software   A SARSEP can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Hr block tax software The catch-up contribution limit for 2013 is $5,500 and remains at $5,500 for 2014. Hr block tax software Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the elective deferral limit (the lesser of 25% of compensation or $17,500), the SARSEP ADP test limit discussed earlier, or the plan limit (if any). Hr block tax software However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Hr block tax software The catch-up contribution limit. Hr block tax software The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Hr block tax software   Catch-up contributions are not subject to the elective deferral limit (the lesser of 25% of compensation or $17,500 in 2013 and in 2014). Hr block tax software Overall limit on SEP contributions. Hr block tax software   If you also make nonelective contributions to a SEP-IRA, the total of the nonelective and elective contributions to that SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). Hr block tax software The same rule applies to contributions you make to your own SEP-IRA. Hr block tax software See Contribution Limits , earlier. Hr block tax software Figuring the elective deferral. Hr block tax software   For figuring the 25% limit on elective deferrals, compensation does not include SEP contributions, including elective deferrals or other amounts deferred in certain employee benefit plans. Hr block tax software Tax Treatment of Deferrals Elective deferrals that are not more than the limits discussed earlier under Limit on Elective Deferrals are excluded from your employees' wages subject to federal income tax in the year of deferral. Hr block tax software However, these deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Hr block tax software Excess deferrals. Hr block tax software   For 2013, excess deferrals are the elective deferrals for the year that are more than the $17,500 limit discussed earlier. Hr block tax software For a participant who is eligible to make catch-up contributions, excess deferrals are the elective deferrals that are more than $23,000. Hr block tax software The treatment of excess deferrals made under a SARSEP is similar to the treatment of excess deferrals made under a qualified plan. Hr block tax software See Treatment of Excess Deferrals under Elective Deferrals (401(k) Plans) in chapter 4. Hr block tax software Excess SEP contributions. Hr block tax software   Excess SEP contributions are elective deferrals of highly compensated employees that are more than the amount permitted under the SARSEP ADP test. Hr block tax software You must notify your highly compensated employees within 2½ months after the end of the plan year of their excess SEP contributions. Hr block tax software If you do not notify them within this time period, you must pay a 10% tax on the excess. Hr block tax software For an explanation of the notification requirements, see Rev. Hr block tax software Proc. Hr block tax software 91-44, 1991-2 C. Hr block tax software B. Hr block tax software 733. Hr block tax software If you adopted a SARSEP using Form 5305A-SEP, the notification requirements are explained in the instructions for that form. Hr block tax software Reporting on Form W-2. Hr block tax software   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Hr block tax software You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Hr block tax software You must also include them in box 12. Hr block tax software Mark the “Retirement plan” checkbox in box 13. Hr block tax software For more information, see the Form W-2 instructions. Hr block tax software Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA. Hr block tax software Also, you cannot make your contributions on the condition that any part of them must be kept in the account after you have made your contributions to the employee's accounts. Hr block tax software Distributions are subject to IRA rules. Hr block tax software Generally, you or your employee must begin to receive distributions from a SEP-IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Hr block tax software For more information about IRA rules, including the tax treatment of distributions, rollovers, required distributions, and income tax withholding, see Publication 590. Hr block tax software Additional Taxes The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for all the following actions. Hr block tax software Making excess contributions. Hr block tax software Making early withdrawals. Hr block tax software Not making required withdrawals. Hr block tax software For information about these taxes, see chapter 1 in Publication 590. Hr block tax software Also, a SEP-IRA may be disqualified, or an excise tax may apply, if the account is involved in a prohibited transaction, discussed next. Hr block tax software Prohibited transaction. Hr block tax software   If an employee improperly uses his or her SEP-IRA, such as by borrowing money from it, the employee has engaged in a prohibited transaction. Hr block tax software In that case, the SEP-IRA will no longer qualify as an IRA. Hr block tax software For a list of prohibited transactions, see Prohibited Transactions in chapter 4. Hr block tax software Effects on employee. Hr block tax software   If a SEP-IRA is disqualified because of a prohibited transaction, the assets in the account will be treated as having been distributed to the employee on the first day of the year in which the transaction occurred. Hr block tax software The employee must include in income the fair market value of the assets (on the first day of the year) that is more than any cost basis in the account. Hr block tax software Also, the employee may have to pay the additional tax for making early withdrawals. Hr block tax software Reporting and Disclosure Requirements If you set up a SEP using Form 5305-SEP, you must give your eligible employees certain information about the SEP when you set it up. Hr block tax software See Setting Up a SEP , earlier. Hr block tax software Also, you must give your eligible employees a statement each year showing any contributions to their SEP-IRAs. Hr block tax software You must also give them notice of any excess contributions. Hr block tax software For details about other information you must give them, see the instructions for Form 5305-SEP or Form 5305A-SEP (for a salary reduction SEP). Hr block tax software Even if you did not use Form 5305-SEP or Form 5305A-SEP to set up your SEP, you must give your employees information similar to that described above. Hr block tax software For more information, see the instructions for either Form 5305-SEP or Form 5305A-SEP. Hr block tax software Prev  Up  Next   Home   More Online Publications