Credit for Small Employer Pension Plan Startup Costs

If you have 100 or fewer employees you may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP, SIMPLE, or qualified plan.

The credit equals 5 percent (5%) of the cost to set up and administer the pan, up to a maximum of $550 per year for each of the first 3 years of the plan.

You can choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.

Use Form 8881, Credit for Small Employer Pension Plan Startup Costs to claim the credit (this was the most recent IRS Form 8881 available as of January 3, 2012).

Credit for Qualified Retirement Savings Contributions

This tax credit was suppose to expire after December 31, 2006 but was made permanent in the Pension Protection Act of 2006.

Certain low and moderate income individuals who are retirement plan participants (including self-employed) and make contributions to their plan, may qualify for the retirement savings contribution credit.

The amount of the credit is based on:

  • Filing status
  • Contributions made by the participant
    • The maximum contribution eligible for the credit is $2,000.
  • His/her credit rate
    • The credit rate can be as low as 10 percent or as high as 50 percent, depending on the participant's adjusted gross income.

Use Form 8880, Credit for Qualified Retirement Savings Contributions to claim the credit.

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