The document provides guidance on ESOP tax reporting requirements, including filing Forms 1099-R and 945. It summarizes that Form 1099-R is used to report distributions to participants and must include details like the recipient's SSN, distribution amounts, and distribution codes. Form 945 reports federal tax withheld on non-payroll payments and distributions. The forms have filing deadlines of January 31st and February 28th, respectively. Taxpayers must take care to follow deposit schedules and use consistent TINs to avoid penalties for non-compliance.

1. Client Alert
DECEMBER 2013
STEIKER, FISCHER, EDWARDS & GREENAPPLE, P.C. | SES ADVISORS, INC.
What You Need to Know About Your ESOP
Tax Reporting
Written by Kelly Irizarry, ESOP
Administrator – SES Advisors, Inc.
Tax reporting is a small, but
important element of the overall
recordkeeping process as it relates to
ESOP plan administration. This
article will explain what is needed
and required to avoid unpleasant
surprises and penalties for noncompliance. Fortunately, most plans
engage the Trustee or Third Party
Administrators (TPAs) to bear the
administrative burden of the
preparation and submission for the
1099-Rs and Form 945. Nonetheless,
employer/taxpayer cooperation is
vital to ensure a smooth and accurate
process.
Annual ESOP Tax
Reporting and Filing
Form 1099-R is filed for participants
receiving distributions of $10 or
more from retirement plans or profitsharing plans, individual retirement
arrangements (IRAs), annuities,
pensions, death benefit and disability
payments made from a retirement
plan, and distributions or 404(k)
dividends from an Employee Stock
Ownership Plan (ESOP).
Form 945 is filed to report all federal
income tax withheld from nonpayroll payments or distributions on
an annual basis. When filing the
Forms 1099-R and 945 the payer,
trustee or plan administrator must use
the same employer identification
number (EIN) and name used to
deposit the tax withholdings.
Form 1099-R Reporting
Requirements
Form 1099-R contains detailed
information specific to each recipient
and outlined as follows:
The recipient account number is
the social security number for the
individual who received the
distribution. For example, if a death
benefit distribution was made to a
participant’s beneficiary, the
beneficiary’s social security number
and address would be reported on the
Form 1099-R.
The gross distribution amount is
reported under Box 1: the total
amount of the distribution prior to
any tax deductions withheld. The
amount in Box 2A is the taxable
amount of the distribution; the
amount reported would be $0.00 if
the distribution amount is transferred
to a direct rollover account as the
distribution amount is non-taxable.
Federal income tax withheld is
reported in Box 4. If state or local
income tax is withheld, those
amounts are reported in Boxes 12
and 15. The payer’s state
identification number is entered into
Box 13 along with the abbreviated
name of the state.
Each distribution has a code that is
reported in Box 7; the distribution
codes are dependent upon the type of
distribution processed. The most
common codes reported are as
follows:
Code 1 {early distribution} - If
employee/taxpayer has not reached
age 59.5 and there are no known
exceptions under Code 2, 3 or 4
Code 2 {early distribution with
possible exceptions} Employee/taxpayer has not reached
age 59.5 and it’s known that the
distribution is a Roth IRA conversion

2. (an IRA converted to a Roth IRA), or
a distribution from a qualified
retirement plan after separation of
service in or after the year the
taxpayer has reached age 55
Code 3 – Disability distribution
Code 4 – Death benefit OR Code
4G as a death benefit rollover
distribution
Code 7 – Normal distribution
from a plan, i.e. employee/taxpayer is
at least age 59.5
Code G – Direct rollover and
rollover contribution
Code U – Dividends that have
been distributed from an employee
stock ownership plan (ESOP) under
section 404(k)
Form 1099-R Filing
Deadlines
All employees/taxpayers that require
a Form 1099-R should receive a copy
of the Form 1099-R by January 31st
for tax filing purposes. The employer
has a February 28th IRS deadline to
file Copy A of Form 1099-R. The
Copy A filing submission to the IRS
consists of the red IRS Form 1099-R
as well as the Form 1096 Transmittal
which is a summary sheet of all the
information contained with the Form
1099-Rs (i.e., total federal taxes
withheld, number of Form 1099-Rs
submitted, total gross distributions
amount, etc.). The Form 1096
Transmittal should be signed by the
trustee of the retirement plan that has
issued the distributions.
Form 945 Reporting
Requirements
Form 945 is used to report federal
income tax that is withheld from nonpayroll payments to include:
pensions, military retirement,
gambling winnings, voluntary
withholding on specific government
payments and backup withholding.
All of the federal income tax
withheld from non-payroll
payments or distributions are to be
reported once on a calendar year
basis. If an employer/taxpayer
withholds federal income tax a
Form 945 must be filed; if there is
zero federal tax withheld then a
Form 945 does not need to be filed.
The Taxpayer Identification
Number (TIN) used on the Form
945 must be consistent with the
TIN used on the Form 1099-R as
the two forms are submitted to the
Internal Revenue Service and the
federal tax withholding amounts
must match one another. Generally
the best practice is to use the Plan’s
TIN. However, in some cases the
Sponsor’s TIN or a third party
payer’s TIN is used.
referenced on the check or money
order.
There are two deposit schedules that
dictate when to deposit federal income
tax withheld: semi-weekly or monthly.
The associated schedules determine
when the deposit is due after the tax
liability occurs; before each calendar
year a determination must be made as
to which schedule will be used. For
calendar year 2013, the employer is a
monthly schedule depositor if the total
tax reported on the 2011 year’s Form
945 was $50,000 or less. If the total
tax exceeded $50,000 on the prior
Form 945 the employer is a semiweekly schedule depositor.
Introducing Paul Fusco
Form 945 Tax
Withholding
Requirements
Federal deposits made by electronic
transfers are usually processed
using the Electronic Federal Tax
Payment System (EFTPS). This is
a free service offered by the
Department of Treasury. Other
options available for funds transfers
are payroll service, financial
institution, institutional Trustee, or
other third party; all other options
may have fees associated with the
service. If the Summary of Deposits
is less than $2,500, payment can be
made by check with the Form 945;
otherwise all deposits should be
made using an electronic funds
transfer system. Payment of less
than $2,500 should be submitted
with the Form 945 and Form 945-V
(payment voucher) with a check or
money order made payable to the
“United States Treasury.” The EIN,
Form 945 and tax period should be
Steiker, Fischer, Edwards &
Greenapple, P.C. is pleased
to announce that Paul S.
Fusco has joined the firm’s
Rochester, NY office as a
Senior Associate.
Contact Paul:
(585) 238-3568 or
pfusco@sfeglaw.com
Learn more at
www.sfeglaw.com
Client Alert

3. Notwithstanding the prior total, if total
withholding exceeds $100,000 on any
day in a deposit period, the taxpayer
immediately becomes a semi-weekly
schedule depositor. For these
taxpayers the withholding must be
deposited the next day after the tax
liability is incurred and Form 945-A
must accompany Form 945.
Form 945 Filing Deadline
The Form 945 must be filed by
January 31st if a payment is included
with the submission. Otherwise, if
deposits were timely and full payment
of taxes for the year processed, the
return can be filed by February 11th.
All Form 945s are sent depending on
two criteria: where the principal place
of business is located and whether or
not a payment is included with the
return.
In most cases the Form 945 is
submitted by the owner of the business
or the trustee of the qualified plan.
There are alternative signature
methods available such as corporate
officers or duly authorized agents who
may sign the Form 945.
Avoiding Potential
Pitfalls
Sponsors of ESOPs and other
retirement plans should be wary of
a few potential pitfalls concerning
tax reporting and withholding
deposits:
1. Register for EFTPS even if you
have no tax liability or your
expected liability is less than
$2,500. Registration is free and
there are penalties for paying late or
failing to pay electronically. It can
take up to four weeks to receive
your Personal Identification
Number (PIN) from EFTPS. Plan
ahead and register before you begin
processing distributions.
2. Be aware of any change in
your withholding deposit status.
E.g., when you first exceed the tax
withholding thresholds of $2,500,
$50,000 in a calendar year or
$100,000 in a deposit period.
3. Ensure that you’re depositing
withholding under the same TIN
as you’re reporting on Form
1099-R. If the TIN doesn’t match,
the Plan Sponsor may be subject to
penalties for late filing or failure to
file and the Plan participants may
have problems filing their personal
tax returns electronically.
4. Collect Social Security
Numbers for every beneficiary
when paying death benefits.
5. Return your 1099 data to your
TPA in a timely manner. SES
sends a template and data request in
December. A prompt response to
this request helps us to ensure your
forms are filed on time.
In conclusion, carefully following
these procedures is necessary to
avoid penalties for non-compliance.
For example, the failure to file
1099-Rs on time may result in a
penalty range of $30 to $100 per
form depending on when the forms
were filed. Also, failure to prepare
and issue the 1099-Rs on time
could result in a participant’s need
to amend their personal tax return.
Form 1099-R: irs.gov/form1099r
Form 945: irs.gov/form945
EFTPS: eftps.gov
Contact Kelly at
kirizarry@sesadvisors.com
Client Appreciation Dinner: Las Vegas
On November 7th, SES Advisors and SFE&G invited our clients to join us at a special appreciation
dinner at Joe’s Seafood Restaurant at The Forum Shops. Clients took a break from The ESOP
Association’s ESOP Technical Conference to celebrate with us.
Client Alert

4. MARCH 2013
Office Spotlight: Philadelphia, PA
Home of the SES/SFE&G headquarters, our staff is out and
about in our community!
My Daughter’s Kitchen
Run by the Vetri Foundation and The Philadelphia Inquirer, the
mission of My Daughter’s Kitchen is to teach Philadelphia
schoolchildren to prepare healthy, easy meals on a budget. Diane
Fanelli and Barbara Krumbhaar volunteer their time each week at
Wissahickon Charter, showing their budding chefs how to cook
unfamiliar foods, such as Moroccan stew and Bucatini with spicy
squash and beans. They begin by finding the foods’ origin on a
map, and even learn how to properly set the table. All of the meals
are nutritious, can be prepared in less than an hour and cost less
than $20 for six servings, making it easy for the kids to bring
recipes home to share with their families.
Special Olympics New Jersey
Special Olympics is founded on the belief that people with intellectual disabilities
can, with proper instruction and encouragement, learn, enjoy and benefit from
participation in individual and team sports. Alice Simons has been an assistant coach
in various sports for the Burlington All-Stars for five years, helping to take the soccer
team to the Regional Tournament in Lawrenceville, NJ this fall. The All-Stars
athletes range in age from 11 to 20 and compete at various skill levels, but everyone
improved throughout the season, enjoyed getting outside and had plenty of fun!
PENNSYLVANIA SES (215) 508-1600, SFE&G (215) 508-1500 | NEW JERSEY SES (973) 540-9200, SFE&G (973) 540-9292
RHODE ISLAND SFE&G (401) 632-0480 | VIRGINIA SES (757) 442-6651| FLORIDA SES (813) 818-5920 | INDIANA SES (219) 548-3696
TEXAS SES (817) 712-2363 | NEW YORK SES (585) 385-0819, SFE&G (585) 238-3568 | MASSACHUSETTS SFE&G (617) 310-6565
VERMONT SFE&G (802) 860-4077 | KENTUCKY SES (859) 425-1223, SFE&G (859) 244-1901
WWW. SESADVISORS.COM | WWW.SFEGLAW.COM
Client Alert