The SECURE 2.0 Act of 2022 increased the credit for pension plans established by small employers by making the credit equal to the entire amount of qualified start-up costs for employers with 50 or fewer employees. It also allows a credit amount for employer contributions to small employer plans.
These changes take effect for taxable years beginning after December 31, 2022, making the 2023 tax year an important time to understand the new benefits and evaluate your franchise’s eligibility.
Increased credit for start-up costs. The Act increases the small employer pension plan start-up cost credit from 50% to 100% of qualified start-up costs for employers with up to 50 employees. An annual cap based on the number of employees, with a maximum of $5,000, applies. This portion of the credit is available for the first three tax years of the plan’s existence.
New credit for employer contributions. The Act also provides a credit amount for all or a portion of employer contributions to small employer pension plans for the first five employer tax years beginning with the one that includes the plan’s start date. Specifically, the amount of the start-up credit is increased by the “applicable percentage” of employer contributions on behalf of employees, up to a per-employee cap of $1,000. The applicable percentage is 100% in the first and second tax years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year.
Multiemployer plans. The Act also allows employers joining a multiple employer plan (MEP, which includes pooled employer plans) to take the portion of the small employer pension credit for qualified start-up costs for the first three years after they join an MEP, regardless of how long the MEP has been in existence. (Under prior law, the credit was available for only the first three years.)
Please note, the credit is not applicable to defined benefit plans, nor to contributions made by employees making more than $100,000 per year.
If your franchise runs an employee benefit plan, Grassi Franchise Advisors can help you determine your potential tax savings under Secure 2.0. For more information or a complimentary assessment, please contact James Bohl or Leonard Carone, Partners in Grassi’s Franchise practice.