A simplified employee pension (SEP) is a written arrangement (a plan) that allows an employer to make deductible contributions for the benefit of participating employees. The contributions are made to individual retirement arrangements (IRAs) set up for participants in the plan. Under a SEP, traditional IRAs must be set up for each qualifying employee (defined below). IRAs may have to be set up for leased employees (defined below), but they do not have to be set up for excludable employees (defined below). Traditional IRAs set up under a SEP plan are referred to in this publication as SEP-IRAs.

Qualifying employee. You are a qualifying employee if you meet all of the following conditions.

1. You are at least 21 years old.
2. You have worked for your employer during at least 3 of the 5 years immediately preceding the current year.
3. You have received from your employer at least $450 in compensation in the current year.

Note. An employer can establish less restrictive participation requirements for its employees than those listed, but not more restrictive ones.

Leased employees. The person or firm for whom you perform services (the recipient) may have to include you in a SEP if you are a "leased employee" and are treated as an employee of the recipient. A leased employee is any person who is not an employee of the recipient and who is hired by a leasing organization, but who performs services for another (the recipient of the services). You are a leased employee if all of the following apply.

1. You provide services under an agreement between the recipient and the leasing organization.
2. You perform services for the recipient, or for the recipient and related persons, on a substantially full-time basis, for a period of at least 1 year.
3. You perform services under the primary direction and control of the recipient.

For more information on leased employees, see the discussion in Publication 560.

Excludable employees. You can be excluded from coverage under a SEP if you are in the following groups of employees.

1. Employees covered by a union agreement if their retirement benefits were bargained for in good faith by their union and their employer.
2. Nonresident alien employees who have no U.S. source earned income from their employer. For more information about nonresident aliens, see Publication 519, U.S. Tax Guide for Aliens.

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