What is is?

• A credit for nonelective contributions or employer match contributions
  • For example, a credit based on the Safe Harbor 401k Match you provide to your team 

IRC 45 creates a phased approach for the credit:

Year 1 100% of the match (subject to rules below)
Year 2 100%
Year 3 75%
Year 4 50%
Year 5 25%

Up to $1,000 per employee making under $100,000.  For example, you provide a $3,000 safe harbor match to an employee earning $75,000.  You receive a $1,000 tax credit for this.  

If you had 10 employees earning <$100,000 all with a $3,000 match, you'd receive a $10,000 credit!

The tax credit is claimed on your BUSINESS tax return!

It is VERY important you communicate this as items may be recorded differently. We will claim this credit for your on your business tax return.

IRC 45 reduces the total employer contribution credit by 2% for each employee exceeding 50 employees and  employers with more than 100 employees are ineligible.

BONUS!
Existing Business Plans PRIOR to 2023
In early 2024, the IRS released new guidance that is EXTREMELY pro business!

Notice 2024-2 Q&A B-5 states that an employer who established a retirement plan in a tax year before the effective date of the SECURE 2.0 can use the credit so long as the employer is still within the the five-year period!

As an example, if your business put a 401k plan in place in 2022, you are eligible in tax year 2023 for 100% employer contribution credit since the plan is in the SECOND year of existence.

NOTE: IF YOU STARTED A RETIREMENT PLAN AFTER 2019 AND HAVE MADE ANY MATCHING CONTIBUTIONS...YOU MAY BE ELIGIBLE FOR THIS TAX CREDIT!  REACH OUT TO US ON SORABAN.