The SECURE Act offers additional tax credits for retirement plan startup costs and automatic enrollment. Stay updated on how these may affect you.
Who is eligible for the tax credits?
- Business owners who have 100 or less employees who have earned at least $5,000 in the past year.
- Business owners who have at least one non-highly compensated employee (NHCE).
- Businesses where, for three tax years before their first year, their employees weren’t mostly the same individuals who received contributions or accrued benefits in another retirement plan sponsored you, a predecessor, and/or a member of a controlled group you belong to.
Find out if your business is eligible and learn more about startup cost tax credits by clicking here.
Tax credit #1 – Retirement plan startup credits
The retirement plan startup credits cover eligible startup costs required to set up the plan, educate employees, and administer it.
- The maximum annual credit limit is now up to $5,000, an increase from the current cap of $500, or $250 per NHCE.
- Startup credit cannot exceed half of the eligible startup costs paid or incurred in a tax year.
- The credit is subtracted from total federal income tax owed and claimed by filing IRS Form 8881.
Tax credit #2 – Small employer automatic enrollment credits
The new small employer automatic credit includes up to $500 per year to employers to provide the startup costs for their new 401(k) and SIMPLE IRA plans that include automatic enrollment. This credit is provided every year for three years and added on in addition to the Retirement Plans Startup Costs Credit.
Small employer start-up credits
For tax years starting after 2019, small employers could receive a new federal income tax credit up to $500 per year that establish new 401(k) plan including automatic enrollment. This tax credit is also available to small business employers who modify their existing plans to include automatic enrollment.
While these updated deadlines won’t allow employees more time for salary deferrals, employers will have more time to decide if they would like to adopt a new 401(k) plan for a year-end profit sharing contribution.
Lookout for additional communications from us regarding more important SECURE Act updates!