Secure 2.0 Tax Credits for Employer-Sponsored Retirement Plans

Table information sourced from the IRS website

The SECURE 2.0 Act contains strong tax credits for small businesses that start retirement plans (401(k), SEP or SIMPLE IRAs). These credits reduce costs substantially, making retirement benefits possible for small employers.

What Are the Startup Tax Credits?

The Employer can claim up to $5,000 a year for three years to help cover the cost of establishing a retirement plan, if they are eligible. Since this is a dollar for dollar reduction in taxes, this is cash in hand.

Eligibility Requirements

Employers qualify if they:

• Have 100 or fewer staffers earning at least $5,000 in the previous year.

• Incorporate at least one Non-Highly Compensated Employee (NHCE) into the plan.

• Haven’t put forward a rival proposal in the past three years

How Much Can You Claim?

For businesses with:

50 or less employees: 100 percent of start-up costs, capped at $5,000.

51–100 employees: 50 percent of startup costs; up to $5,000

What Costs Are Covered?

Credits are applicable to expenses for:

• Establishing and managing the plan.

• Educating employees about the plan

Tax Credits for Employer Contributions

Employers could also be eligible, per employee, to receive up to $1,000 for contributions to retirement accounts, phasing down over five years.

0-50 employees:

• Year 1: 100%, up to $1,000

• Year 2: 100%, up to $1,000

• Year 3: 75%, up to $1,000

• Year 4: 50%, up to $1,000

• Year 5: 25%, up to $1,000

51–100 employees:

• Year 1: 100% minus 2% for each employee exceeding 50, up to $1,000

• Year 2: 100% minus 2% for each employee exceeding 50, up to $1,000

• Year 3: 75% minus 2% for each employee exceeding 50, up to $1,000

• Year 4: 50% minus 2% for each employee exceeding 50, up to $1,000

• Year 5: 25% minus 2% for each employee exceeding 50, up to $1,000

Auto-Enrollment Tax Credit

Employers that add auto-enrollment to a new or an existing plan can claim an additional $500 per year for three years.

Claiming the Credit

To claim these credits, simply file Form 8881 along with your tax return.

Such incentives lower costs, allowing small businesses to provide benefits to employees and attract quality talent. We would be glad to help you in starting a plan for your business.