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Retirement Plan Credit

Small employers that create a retirement plan may be able to claim up to $500 in income tax credit per year for three years by filing the Form 8881 Credit for Small Employer Pension Startup Cost. The credit is limited to 50% of qualified startup costs.

To be eligible, small employers should not exceed 100 employees receiving at least $5,000 in compensation in the tax year preceding the first credit year. Exceptions apply.

Qualified startup costs are expenses that are paid or incurred in connection with:

1) Establishing or administering an eligible employer plan, or

2) The retirement-related education of employees about the plan.

The eligible employer plan refers to a qualified employer plan with at least one employee eligible to participate who is not a highly compensated employee. If an employer has more than one eligible employer plan, all plans will be treated as one eligible employer plan.

The first credit year, generally is the tax year during which the eligible employer plan becomes effective. However, taxpayers may elect to claim the credit in the preceding tax year.

For more information regarding the retirement plan tax credit, always consult a Certified Public Accountant. Submitted by: Brian Walgamott, CPA, Director, Tax Services, Thomas Howell Ferguson P.A. CPAs, (850) 668-8100, bwalgamott@thf-cpa.com.


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