IRS Provides Guidance on Employer Tax Credit

The Secure Act created a new small employer automatic enrollment credit of up to $500 per year to employers to defray startup costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment.


The new credit applies to taxable years beginning after Dec. 31, 2019.

The Internet Revenue Service just opined that the tax credit applies separately to each eligible employer that participates in a multiple employer plan (MEP) under Section 413(c). So each eligible employer generally would qualify for the credit for the three-year credit period beginning with the first taxable year in which the eligible employer’s participating employees are first covered by an eligible automatic contribution arrangement (EACA) under the MEP.


The IRS also advised that an eligible employer may not receive credit with respect to taxable years in more than one 3-year credit period. The Notice explains that an eligible employer may receive credit for taxable years only during a single 3-year credit period that begins when the employer first includes an EACA in any qualified employer plan.


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