As of the 2023 tax year, SECURE Act 2.0 has made generous tax credits available to small companies who start qualified retirement plans!
Your company may qualify for three multi-year credits for:
1
Employer contributions made on behalf of participants
Tax Credit Available: Up to $1,000 per eligible employee phased down over 5 years
2
Plan startup and annual plan costs
Tax Credit Available: The greater of $500 or $250 per plan eligible employee to a max of $5,000 per year for 3 years
3
Including an auto‑enrollment provision
Tax Credit Available: $500 per year for 3 years
Examples
Total Employees |
20 | 30 | 65 | ||||||||||||||||||||||||
Owners/HCE* |
4 | 5 | 5 | ||||||||||||||||||||||||
Eligible and earn <$100,000 |
10 | 10 | 30 | ||||||||||||||||||||||||
Eligible and earn $100,000- $149,000 |
1 | 3 | 10 | ||||||||||||||||||||||||
Not eligible |
1 | 3 | 30 | ||||||||||||||||||||||||
Plan Tax Credit of $250 per eligible NHCE |
$250 x 11 = $2,750 |
$250 x 13 = $3,250 |
$250 x 40 = $10,000 capped at 50% or $5,000 |
||||||||||||||||||||||||
Contribution Tax Credit up to $1,000 per Employee |
Up to $10,000 | Up to $10,000 | Up to $21,000 | ||||||||||||||||||||||||
Auto Enroll |
Yes = $500 | Yes = $500 | Yes = $500 | ||||||||||||||||||||||||
Total Potential Credits Per Year |
|
|
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*HCE = Highly Compensated Employee; NHCE = Non-Highly Compensated Employee
REQUIREMENTS TO QUALIFY FOR SECURE ACT 2.0
Startup Tax Credits
- Your company did not offer a plan covering substantially the same employees during the previous three tax years, and
- Your company had no more than 100 employees who received compensation of $5,000 or more in the preceding year
SECURE ACT 2.0 TAX CREDIT FOR
Employer Contributions
The tax credit is a decreasing percentage of the amount contributed by the employer for each employee earning no more than $100,000 per year, up to $1,000 annually per employee, over the plan’s first five years.
SECURE ACT 2.0 TAX CREDIT FOR
Plan Costs
The tax credit for plan costs reduces the federal tax liability a small business may owe during each of the first three years of its first-ever retirement plan.- If your company has 50 or fewer employees, the credit covers up to 100% of ordinary and necessary out-of-pocket plan costs*.
- If your company has 51 to 100 employees, the credit covers 50% of these costs*.
IMPORTANT NOTE: The information provided is intended solely for educational purposes. Please consult a tax professional and your financial advisor for guidance about tax credits that may be available for your company’s unique situation.
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