USA SEP participation rules

May 26, 2022
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United States
Hi All,

I’m a financial advisor with a client who has a SEP IRA. All of his employees are employed by a payroll (or leasing) company. The IRS defines “leased employees” in pub 560, but it’s not clear to me whether these leased employees have to be counted as employees for SEP purposes. The code is clear that they must be included in 401k participation, but it’s not as clear on SEPs. My client’s employees DO meet the IRS definition of leased employees and they DO NOT fall into any of the exclusions…so they are indeed “leased employees” according to pub 560.

My question is this…do leased employees have to be included in SEP participation (assuming they meet the other SEP rules for participation)?

Thank you very much in advance for help with this. The answer could potentially help my client avoid a costly mistake.

David Barfield
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