The SECURE Act 2.0: Tax information

SECURE Act 2.0 expands upon tax-related provisions established by the original SECURE Act. One of the most talked about provisions of the SECURE Act 2.0 are the expanded small business tax incentives.  

Secure Act 2.0 doubles tax credits for new plans  

Under the SECURE Act 2.0, small businesses employing up to 50 individuals will benefit from an enhanced tax credit. This credit will cover 100% of the expenses associated with starting a retirement plan, as opposed to the previous 50% coverage. The maximum annual cap of $5,000 per employer remains the same, applicable for the first three years. This adjustment has the potential to provide a total credit of $15,000. On the other hand, businesses with 51 to 100 employees will continue to receive the original SECURE Act tax credits. These credits are set at 50% of administrative costs, with the same annual cap of $5,000 per employer for three years. 

The updated legislation extends the eligibility for the start-up tax credit by allowing employers to qualify based on the year they join existing multiple employer plans, rather than solely when they join new plans. This means that employers can now take advantage of the start-up tax credits regardless of whether they join new plans or existing multiple employer plans. 

New tax credits for employer contributions

The SECURE Act 2.0 includes provisions for small businesses with up to 50 employees to receive a new tax credit. This credit is determined based on a percentage of the employer contributions made to employee retirement plans. Employers can claim up to $1,000 per employee, provided that the employee's income in the prior year was below $100,000. This tax credit serves as an incentive for small businesses to contribute to their employee's retirement savings. 

Eligible employers with 51 to 100 employees will qualify for a credit phase-in ofa percentage of 2% points for each employee for the preceding taxable year in excess of 50 employees. 

For all employers, the credit is reduced based on the number of years the plan is in existence. The credit is: 

• 100% in the first and second years 
• 75% in the third year 
• 50% in the fourth year 
• 25% in the fifth year 

Auto-enrollment tax credits

The tax credit for auto-enrollment was established with the original SECURE Act and is still available through 2.0. This is a credit of $500 per year for the first three years when electing auto-enrollment during plan design. 

As discussed in the first part of this series, starting in 2025, auto-enrollment will be mandatory for new plans that started after December 29, 2022, when the SECURE Act 2.0 was signed into law. 

What next? 

Are your clients already offering retirement benefits? If not, now is the time to start. Human Interest’s Plan Cost Calculator can help you see what the cost to start a plan may be, including the SECURE Act 2.0 tax incentives.  

See part 1 of this topic here:  The SECURE Act 2.0: What Accounting Professionals Need to Know