However, his earned income would drop further because it is computed after taking into account amounts contributed by the self-employed individual to the HR-10 plan for himself, as well as for his common law employees.
Contributions made on behalf of an owner-employee to an HR-10 plan are deductible from gross income on the owner-employee's federal income tax return.
The annual additions limit does not apply to defined benefit HR-10 plans; they are subject to a separate Section 415 limit based on the benefit promised by the plan.
The deduction limits on contributions to HR-10 plans depend on the type of plan.
The benefit accumulated in an HR-10 plan for an employee who was married during his participation in the plan while a resident of a community property state belongs equally to the employee and his or her spouse.
Contributions were made to an HR-10 plan each year on his behalf throughout the 15-year period.
Other methods of dividing community property HR-10 benefits could be used where appropriate.
The non-community property portion of the HR-10 benefit would be the separate property of the employee.
(21) The allowable deductions for HR-10 contributions include not only the deductions for common law employees but deductions for self-employed individuals as well.
Added to this complexity is the fact that the IRS has ruled that self-employment tax must be computed and the deduction for one-half of the self-employment tax must be taken before determining the HR-10 contribution.