Small Business Tax Credits.pdf

Small Business Tax Credits for Retirement Plans, as enhanced by SECURE Act 2.0, aim to expand coverage and make it easier for small businesses to start retirement plans. The tax credits work as follows:
- A tax credit on qualified plan startup costs paid by the employer, with the credit being the greater of $500 or the lesser of $250 multiplied by the number of non-highly compensated employees eligible to participate in the plan, or $5,000.
- The credit is available for each of the first 3 years, with 100% tax credit for businesses with less than 50 employees and 50% tax credit for businesses with 51-100 employees.
- An additional tax credit of $500 annually for 3 years is available for small businesses that start a new plan with automatic enrollment or add it to their existing plan.
- To be eligible, the business must have 100 or fewer employees, at least one non-highly compensated employee participant, and not have substantially the same employees covered by another retirement plan in the preceding three tax years.
- The credit applies to safe harbor contributions, profit-sharing contributions, and regular matching contributions, with a maximum of $1,000 per non-highly compensated employee with wages below $100,000.
- The tax credit is phased out for employers with 51-100 employees and is not applicable to tax-exempt entities or solo/individual 401(k) plans.