Credit for Small Employer Pension Plan Startup Costs, Auto-Enrollment, and Military Spouse Participation

Qualified small employers use Form 8881 to request a credit for start up costs related to eligible retirement plans. Form 8881 implements section 45E, which provides a credit based on costs incurred by an employer in establishing or administering an eligible employer plan or for the retirement related education of employees with respect to the plan. The credit is 50% of the qualified costs for the tax year, up to a maximum credit of $500 for the first tax year and each of the two subsequent tax years. The Secure 2.0 Act of 2022 added new IRC section 45AA, Military Spouse Retirement Plan Eligibility Credit for Small Employers. Section 45AA provides a general business tax credit to eligible small employers who offer defined contribution plans with specific features that benefit military spouses. The section 45AA credit is, for a tax year during which a military spouse participates in the plan, up to 3 tax years beginning with the tax year during which the military spouse began participating in the plan, $200, plus the amount of employer contributions (other than elective deferrals) made on behalf of the military spouse for any of the 3 tax years, up to $300 for a tax year. The Form 8881 is being revised to add the Section 45AA credit. Additionally, the Secure 2.0 Act amended section 45E to permit eligible employers, with 1–50 employees, an increased start-up costs credit of 100% of the qualified start-up costs for a tax year, up to $500 for the tax year in which the plan is established or becomes effective and each of the two subsequent tax years. The Secure 2.0 Act also amended section 45E to permit an additional credit for employer contributions by certain eligible employers, in an amount equal to an applicable percentage of eligible employer contributions to a defined contribution plan, for up to 5 tax years beginning with the tax year in which the plan is established. The Form 8881 is being revised to include these additions under section 45E.

The latest form for Credit for Small Employer Pension Plan Startup Costs, Auto-Enrollment, and Military Spouse Participation expires 2027-04-30 and can be found here.