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Small Businesses Eligible for 401(k) Tax Credits

The Securing a Strong Retirement Act of 2022 (SECURE Act 2.0), passed in March 2022, expanded efforts to help Americans achieve retirement savings security. 

The bill sought to further remove obstacles to saving for retirement, including a lack of access to employer-sponsored plans. To incentivize employers to open new 401(k) plans, the SECURE Act 2.0 expanded an attractive tax credit. Employers may claim the tax credit for the “ordinary and necessary costs” they incur to set up and administer a retirement plan and educate employees about the plan. 

Business Tax Credits for 401(k) Plans 

The original SECURE Act passed in 2019 contained a tax credit of 50% of the administrative costs of starting a new 401(k) plan up to an annual cap of $5,000. Section 102 of SECURE Act 2.0 increased this credit to 100% for employers that have up to 50 employees. The tax credit can be claimed for each of the first three years of the plan, and employers may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.  

The credits are available beginning in tax year 2023. 

Claiming the 401(k) Tax Credit 

Qualifying employers may claim the credit using Form 8881, Credit for Small Employer Pension Plan Startup Costs. 

An experienced and knowledgeable tax advisor like S.J. Gorowitz Accounting & Tax Services can help business owners understand how to claim the tax credits and choose the optimal retirement plan amid the myriad options available in the market.  

When we begin our tax advisory engagements with small and closely held businesses, the S.J. Gorowitz Accounting & Tax Services team starts with retirement planning considerations. By integrating retirement planning with tax strategies and tax credits, we’ve helped our clients keep more of what they earn and save thousands of dollars. 

Please call us at 770.740.0797 or email us at info2@SJGorowitz.com. 

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