Retirement Plan Startup Tax Credit — Let the IRS Subsidize a New Small-Business 401(k), SEP, or SIMPLE
What Is It?
Small employers may claim a federal tax credit for qualified costs of starting a retirement plan like a 401(k), SEP, or SIMPLE IRA.
What Most People Don’t Know
- This is a credit, not just a deduction.
- SECURE 2.0 increased the startup-cost credit for many employers with 1 to 50 employees.
- The credit can run for three years.
Frequently Asked Questions
Who can qualify?
A: IRS guidance says eligible employers generally must have had 100 or fewer employees who received at least $5,000 in compensation in the prior year and meet other conditions.
Is this only for plan setup fees?
A: IRS Form 8881 instructions address startup costs and, in some cases, related employer-contribution and auto-enrollment credits.