All about SECURE Act 2.0 Tax Credits for Small Businesses

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As a CPA for tech firms, you know that small businesses are the backbone of the economy. And with limited resources and lofty goals, the companies that you advise could benefit significantly from tax credits designed to help them and their employees thrive.

With the recently introduced SECURE Act 2.0, your clients might be eligible for valuable tax credits by setting up a retirement plan, like an employer-sponsored 401(k). Read our guide below to learn more and how you can help claim these credits on your client’s behalf.

Startup tax credit

Is your client starting a new plan? There are tax credits available to help offset the costs of that plan for up to three years with this new clause.

According to SECURE Act 2.0, eligible startup costs include “ordinary and necessary costs to set up and administer a new plan and educate employees about the plan.” Here’s how the credits stack up based on a company’s number of employees:

Note that there are some stipulations when counting who is considered an employee:

• Employees who earn less than $5,000 do not count towards the calculation of the number of employees
• Tax credit calculation is the lesser of $250 multiplied by the number of non-highly compensated employees (HCEs) OR $5,000 (the minimum credit is $500)
• For 2023, non-HCEs must own less than 5% of the company and have earned less than $135,000 in 2022

Employer contribution credit

To enable small businesses to support their employees’ retirement, this clause allows businesses to claim back costs associated with making employer contributions toward employees’ 401(k)s.

If your client’s company adopts employer contributions as a part of its plan design, they may be able to claim these costs for up to five years.

Here’s how to determine whether a company is eligible:

*If the employer maintained a 401(a), 403(a), SIMPLE, or SEP plan in the three taxable years immediately preceding the tax year in which the plan is adopted, the employer cannot take a deduction for the year of the adoption, but is eligible for tax credits in the next four tax years

Additional considerations for eligibility include:

• Employees who earn less than $5,000 do not count toward the calculation of the number of eligible employees
• Tax credit only applies to employees who make less than $100,000 in FICA wages
• Maximum credit amount is the lesser of actual employer contributions or $1,000 per employee making $100,000 or less in FICA Wages

Automatic enrollment credit

Employers that establish a new 401(k) plan after 12/29/22 that includes automatic enrollment can take advantage of this new credit for up to three tax years.

Eligibility for the automatic enrollment credit depends on a company’s employee count:

This trend of opting all employees into the plan aims to increase participation and encourage employees to get started with their 401(k) now, rather than wait to prioritize this crucial financial decision.

Use tax incentives to cut costs of your 401(k)

Taking advantage of the tax credits and deductions discussed above is one great way to save money when starting a retirement plan—choosing an easy-to-manage 401(k) is another.

Betterment at Work offers modern financial wellness solutions and ongoing support to drive your business forward:

•  An easy-to-manage 401(k) plan: Make administration simple for your clients, from streamlined onboarding and payroll integration to detailed reporting.
• Give employees the support they need: Financial tools and guidance help employees make decisions that are right for them, including expert-built portfolios, automated investing strategies, and access to a full suite of wealth building tools for retirement—and beyond.
• Additional financial benefits: Option to add on Student Loan Management, 529 Education Savings, and 1-1 Financial Coaching to support the needs of your client’s diverse workforce.
• Simplified plan administration: From payroll integration to plan design to administrative and limited fiduciary support, Betterment helps your clients set up and manage a plan with ease.
• Transparent and flexible pricing: Betterment offers clear and flexible pricing to meet your client’s specific needs, so that they always understand what they’re paying for

A Betterment 401(k) plan could be better for your clients. Plus, we have a special offer live just for Shay CPA firms. Find out more today.

Disclosure:
529 accounts and their plans are held and managed by program administrators and managers outside of Betterment. 529s are only available as part of a bundled offering with a Betterment 401(k). Not available in the Essential plan.

Student Loan Management by Betterment at Work is provided in partnership with Spinwheel.

For financial coaching services, additional fees apply for use in the Pro plan. Services not available in the Essential plan.

This content from Betterment LLC and Betterment for Business LLC (d/b/a Betterment at Work) is not intended as a recommendation, offer, or solicitation for the purchase or sale of any security or investment strategy. The information contained is intended for educational purposes only and is not meant to constitute investment or tax advice. Advisory services provided by Betterment LLC, an SEC-registered investment adviser. Brokerage services provided to clients of Betterment LLC by Betterment Securities, an SEC-registered broker-dealer and member of FINRA/SIPC. 401(k) plan administration services provided by Betterment for Business LLC. Investments in securities: Not FDIC Insured • No Bank Guarantee • May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. ©Betterment. All rights reserved.