staff@rosetaxandfinancial.com

(888) 305-5301

Client Portal
Rose Tax and Financial

Learning Center

Employer's Pension Startup Credit Substantially Increased

Article Highlights:

  • Eligible Plans
  • Eligible Expenses
  • Qualification Rules
  • Credit Amount
On December 20, 2019, President Trump signed into law the Appropriations Act of 2020, which included a number of tax law changes, including retroactively extending certain tax provisions that expired after 2017 or were about to expire, a number of retirement and IRA plan modifications, and other changes that will impact a large portion of U.S. taxpayers as a whole. This article is one of a series of articles dealing with those changes and how they may affect you.

If you are considering establishing a qualified pension plan for your business, you may be entitled to the Credit for Small Employer Pension Startup Costs. Eligible small employers that adopt a new plan, such as a 401(k), a SIMPLE plan, or a simplified employee pension plan (SEP), may claim a nonrefundable credit.

The first credit year is the tax year that includes the date when the plan becomes effective or, electively, the preceding tax year. Examples of qualifying expenses include the costs related to changing the employer’s payroll system, consulting fees, and set-up fees for investment vehicles.

There are some qualification rules, the most predominant being:
  • The business did not employ, in the preceding year, more than 100 employees with compensation of at least $5,000.

  • The plan must cover at least one non–highly compensated employee.

  • The plan must be a new plan; during the three prior years, the employer must not have had a qualified employer plan for which contributions were made or in which benefits accrued for substantially the same employees who are in the plan for which the credit is being claimed.

  • If the credit is for the cost of a payroll-deduction IRA plan, the plan must be made available to all employees who have worked with the employer for at least three months.

Prior to 2020, this non-refundable credit was limited to the lesser of $500 or 50% of administrative and retirement-education expenses for the plan, for each of the plan’s first three years.

The Appropriations Act of 2020 increased the maximum credit for years beginning after 2019 to the greater of $500 or the lesser of (a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan or (b) $5,000.

The term “highly compensated employee” generally means any employee who (a) was a 5% owner at any time during the year or the preceding year, or (b) had compensation from the employer in excess of $130,000 (2020 amount, which is inflation adjusted for future years) during the year.

If you have questions related to starting a company pension plan or qualifying for this credit, please give this office a call.

If you missed any of the earlier tax law change articles you can view those articles at the links below:

Share this article...
Facebook
Twitter LinkedIn Pinterest Pocket Reddit Email

NEVER MISS A STORY.

Sign up for our newsletters and get our articles delivered right to your inbox.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

Social Media

Rose Tax & Financial

8 Pinon Ave
Cedar Crest, New Mexico 87008
Mon - Fri: 10:00am to 6:00pm
Sat: 10:00am to 2:00pm

Check the background of your financial professional on FINRA's BrokerCheck
Avantax affiliated Financial Professionals may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state. Securities offered through Avantax Investment Services℠, Member FINRA, SIPC, Investment Advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through an Avantax affiliated insurance agency. 3200 Olympus Blvd., Suite 100, Dallas, TX 75019. 972-870-6000.
The Avantax family of companies exclusively provide financial products and services through its financial representatives. Although Avantax Wealth Management® does not provide or supervise tax or accounting services, Avantax representatives may offer these services through their independent outside business. Content, links, and some material within this website may have been created by a third party for use by an Avantax affiliated representative. This content is for educational and informational purposes only and does not represent the views and opinions of Avantax Wealth Management® or its subsidiaries. Avantax Wealth Management® is not responsible for and does not control, adopt, or endorse any content contained on any third party website.
This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences.
For Important Information and Form CRS please visit https://www.avantax.com/disclosures.

FAQs Frequently Asked Questions
Type your message here.
Please fill out the form and our team will get back to you shortly The form was sent successfully
Contact Us