When Are Profit Sharing Contributions Due?

Profit-sharing contributions offer a flexible way for employers to share business success with employees while providing tax-advantaged retirement savings. These contributions are an important component of many defined contribution plans, such as 401(k)s, Simplified Employee Pensions (SEPs), and Savings Incentive Match Plans for Employees (SIMPLE IRAs). Employers determine the amount contributed annually, which can vary based on profitability. Ensuring contributions are made by specific deadlines is important for tax deductions and regulatory compliance.

Standard Contribution Deadlines

Profit-sharing contribution deadlines are generally tied to the employer’s tax filing deadline for the prior tax year, ensuring deductibility for that period. If the standard deadline falls on a weekend or holiday, it typically shifts to the next business day.

For sole proprietorships and single-member LLCs taxed as sole proprietorships, the deadline is typically April 15th for calendar year filers, aligning with the individual income tax return due date. Contributions by this date are deductible for the previous tax year.

Partnerships, multi-member LLCs taxed as partnerships, and S Corporations generally have a March 15th deadline for calendar year filers, corresponding with their income tax return deadlines. Contributions must be funded by this date to be deductible for the preceding tax year.

C Corporations usually have until April 15th for calendar year filers, or the 15th day of the fourth month following their fiscal year close. Regardless of entity type, contributions must be physically received by the plan’s trust by the deadline to be deductible for the prior tax year.

Utilizing Tax Extensions for Contributions

Filing a tax extension for a business’s income tax return extends the profit-sharing contribution deadline for the prior tax year, providing additional time to fund plans. This extension applies to the contribution deadline, not the tax payment deadline.

For sole proprietorships, filing IRS Form 4868 extends their personal tax filing and profit-sharing contribution deadlines, typically to October 15th. This provides an automatic six-month extension.

Corporations and partnerships utilize IRS Form 7004 to extend their tax filing and profit-sharing contribution deadlines, usually to September 15th for calendar year filers. This grants an automatic six-month extension.

While these forms extend the time to file the tax return and make contributions, they do not extend the time to pay any taxes due. Businesses must still estimate and pay their tax liability by the original due date to avoid penalties and interest.

Consequences of Missed Deadlines

Failing to make profit-sharing contributions by the standard or extended deadlines can result in significant financial and compliance implications. A primary consequence is the loss of the tax deduction for the prior tax year. Contributions made after the extended deadline are generally not deductible for that year.

Late or excess contributions can also trigger excise taxes. Internal Revenue Code Section 4972 imposes a 10% excise tax on nondeductible contributions to qualified plans, paid by the employer on contributions exceeding deductible limits or made after the deadline.

Consistent failure to meet contribution deadlines or properly administer the plan can affect its qualified status. Maintaining compliance is important to ensure the plan continues to receive favorable tax treatment.