Tax Credits
In late 2022, SECURE 2.0 passed which opened up a significant amount of tax credits for new plans starting in 2023.
Fill out the form below to view your estimated tax credits instantly, or request a call from a 401(k) expert.
How
Tax Credits
Help Your Business.
Considering a retirement plan for your employees? Many businesses are eligible for enticing tax credits that not only mitigate initial setup expenses but also enhance the contributions towards the retirement dreams of their staff.
To qualify, it’s important to note criteria like the three-year rule, which ensures your employees haven’t been part of a similar plan in the preceding three tax years.
While navigating these benefits can seem complex, our tax credit calculator is designed to simplify the process.
By using it, you can quickly ascertain if you qualify and, if so, the potential savings awaiting your business. Let us guide you through a savvy financial decision—check your eligibility now!
Available Tax Credits
Contribution Credit
Companies have the potential to receive up to $1,000 per employee who earns under $100,000 annually.
This incentive is designed to help businesses offset the costs associated with providing a match or contribution to their employees’ retirement plans.
Administration Credit
Employer’s will receive $250 per non-highly compensated employee that participates in a plan.
This will allow the business to offset up to 100% of any out of pocket expenses including administration and record keepers costs.
Auto-Enrollment Credit
Companies implementing automatic enrollment for their employees in a 401(k) plan may be eligible for a $500 credit.
Despite this auto-enrollment feature, employees have the option to opt out of the plan should they choose not to participate.
Most Asked Questions
What businesses qualify for the new tax credits?
- You should have no more than 100 team members who each earned a minimum of $5,000 from your company last year.
- Additionally, at least one employee in your retirement plan should be a Non-HCE (Non Highly Compensated Employee).
- Finally, your business shouldn’t have had a plan in place in the previous 3 years.
The Contribution Tax Credit requires employees who have eared less than $100,000 income.
How do I receive my tax credits?
You can file for the tax credits with your tax professional using Form 8962.
How long do the tax credits last?
Administration Credits and Auto-Enrollment Credits will last for the first three years of the plan.
The Contributions Tax Credits will last for 5 years using the following amounts: Year 1 – 100%, Year 2 – 100%, Year 3 – 75%, Year 4 – 50%, Year 5 – 25%.
What costs can I offset with the tax credits?
The Contribution Tax Credit will help to offset the contribution or match you give to a qualifying employee.
The Administration Credits and Auto-Enrollment Credits will help offset out of pocket expenses from implementing and managing the retirement plan.
Is there a maximum limit to the tax credits?
Yes, the Adminsitration Credit has a maximum of $250 per employee, $5,000, up to 100% your out of pocket expenses, whichever is less.
The Auto-Enrollment Credit is a flat $500.
The Contribution Credit is a bit more complicated and has a maximum of $1,000 per qualifying employee up to the first 50 employees.
For companies with between 51 and 100 workers, figuring out the employer contribution tax credit is a bit more intricate. The five-year phase-down structure remains the same as it is for companies with 1 to 50 employees.
However, the credit amount decreases by 2% for every employee beyond the 50th. To find out the reduced credit, you multiply 2% by the number of workers exceeding 50, and then subtract that figure from the total available credit percentage for that year.
For instance, let’s say a newly launched 401K plan includes 80 staff members and is in its first year of the five-year discount period. Here’s how you’d compute the tax credit:
100% – (2% x 30 employees) = 40%
So, rather than getting a full 100% tax credit for qualifying employer contributions for employees earning less than $100,000, this firm would get a 40% tax credit for those contributions.
Once you exceed the 100 employees, the tax credit will naturally deplete to $0.
Which types of retirement plans qualify for the tax credits?
The following types of retirement plans qualify for the tax credits:
- 401(k) Plans
- 403(b) Plans
- SEP IRA
- Simple IRA
- Profit Sharing
- Cash Balance Plans
- Defined Benefit Plans