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SECURE 2.0 Act:

Tax credit for employer contributions

Effective, January 1st, 2023, SECURE 2.0 added a new tax credit for small business owners who provide employer contributions to a NEW 401(k) Retirement Plan.

What is the 401(k)-employer contribution tax credit?

Additional tax credit based on the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000. The credit is a decreasing percentage of the amount contributed by the employer, over a five-year span.

    • Applies to taxable years that begin after December 31st, 2022.
    • The tax credit percentage is applied to the amount of employer contributions and based on the five-year phase-down schedule; 100% in the first and second year, 75% in the third year, 50% in the fourth year, 25% in fifth year, and no credit for tax year thereafter.


   Year 1    Year 2    Year 3    Year 4    Year 5
   100%     100%     75%      50%     25%

Who is eligible for the 401(k)-contribution tax credit?

The tax credit is available for employees earning no more than $100,000 for prior year, and it can provide up to $1,000 in tax credits annually per employee over the first five years of the plan.

    • The plan must have less than 100 employees making at least $5,000 in the prior year.
    • For plans that have over 50 employees, the percentage for the taxable year is reduced by 2% for each employee in excess of 50 employees.


Key Takeaway: Adding employer contributions to your retirement plan creates more savings to the Employer and qualifies them for additional tax credits that makes starting up and administering their 401(k) Retirement Plan even more affordable.


See SECURE 2 0 Act Startup tax credit for small businesses for more information.

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Heather Craigg