Creating a new employee retirement plan could mean a tax credit

If you have been considering creating a retirement plan for your employees, you should know about a valuable tax credit that is available.

Employers may be able to claim a tax credit for some of the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified retirement plan.

The tax credit is 50 percent of ordinary and necessary costs up to a maximum of $500 per year. The credit can be claimed for the first three years of the plan. You could also choose to claim the credit in the tax year before the tax year in which the plan becomes effective.

You may qualify to claim this credit if:

  • You had 100 or fewer employees who received at least $5,000 in compensation from you the preceding year;
  • You had at least one plan participant who was a non-highly compensated employee; and
  • In the three tax years before the first year you are eligible for the credit, your employees were substantially the same employees who received contributions or accrued benefits from another plan sponsored by you.

The credit is for the ordinary and necessary costs to set up and administer the retirement plan and to educate your employees about the plan.

The credit is part of the general business credit. You may carry it back or forward to other tax years if you cannot use it in the current tax year. It is important to note that you cannot both deduct the startup costs and claim the credit for the same expenses. Please contact our office and we can help you decide which would be most beneficial for you.

Nina Daigle, CPA, is a partner with Antares Group, Inc. She can be reached at