Small employer pension plan startup costs

1. Law
2. USC 26
3. Internal Revenue Code
4. Income Taxes
5. NORMAL TAXES AND SURTAXES
6. Determination of Tax Liability
7. CREDITS AGAINST TAX
8. Business Related Credits
9. Small employer pension plan startup costs

§45E. Small employer pension plan startup costs

(a) General rule

For purposes of section 38, in the case of an eligible employer, the small employer pension plan startup cost credit determined under this section for any taxable year is an amount equal to 50 percent of the qualified startup costs paid or incurred by the taxpayer during the taxable year.

(b) Dollar limitation

The amount of the credit determined under this section for any taxable year shall not exceed-

(1) for the first credit year and each of the 2 taxable years immediately following the first credit year, the greater of-

(A) $500, or

(B) the lesser of-

(i) $250 for each employee of the eligible employer who is not a highly compensated employee (as defined in section 414(q)) and who is eligible to participate in the eligible employer plan maintained by the eligible employer, or

(ii) $5,000, and

(2) zero for any other taxable year.

(c) Eligible employer

For purposes of this section-

(1) In general

The term "eligible employer" has the meaning given such term by section 408(p)(2)(C)(i).

(2) Requirement for new qualified employer plans

Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a qualified employer plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan.

(d) Other definitions

For purposes of this section-

(1) Qualified startup costs

(A) In general

The term "qualified startup costs" means any ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with-

(i) the establishment or administration of an eligible employer plan, or

(ii) the retirement-related education of employees with respect to such plan.

(B) Plan must have at least 1 participant

Such term shall not include any expense in connection with a plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee.

(2) Eligible employer plan

The term "eligible employer plan" means a qualified employer plan within the meaning of section 4972(d).

(3) First credit year

The term "first credit year" means-

(A) the taxable year which includes the date that the eligible employer plan to which such costs relate becomes effective, or

(B) at the election of the eligible employer, the taxable year preceding the taxable year referred to in subparagraph (A).

(e) Special rules

For purposes of this section-

(1) Aggregation rules

All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (m) or (o) of section 414, shall be treated as one person. All eligible employer plans shall be treated as 1 eligible employer plan.

(2) Disallowance of deduction

No deduction shall be allowed for that portion of the qualified startup costs paid or incurred for the taxable year which is equal to the credit determined under subsection (a).

(3) Election not to claim credit

This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.

(Added Pub. L. 107–16, title VI, §619(a), June 7, 2001, 115 Stat. 108 ; amended Pub. L. 107–147, title IV, §411(n)(1), Mar. 9, 2002, 116 Stat. 48 ; Pub. L. 116–94, div. O, title I, §104(a), Dec. 20, 2019, 133 Stat. 3147 .)

Amendments

2019-Subsec. (b)(1). Pub. L. 116–94 amended par. (1) generally. Prior to amendment, par. (1) read as follows: "$500 for the first credit year and each of the 2 taxable years immediately following the first credit year, and".

2002-Subsec. (e)(1). Pub. L. 107–147 substituted "subsection (m)" for "subsection (n)".

Effective Date of 2019 Amendment

Pub. L. 116–94, div. O, title I, §104(b), Dec. 20, 2019, 133 Stat. 3147 , provided that: "The amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 2019."

Effective Date of 2002 Amendment

Amendment by Pub. L. 107–147 effective as if included in the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107–16, to which such amendment relates, see section 411(x) of Pub. L. 107–147, set out as a note under section 25B of this title.

Effective Date

Section applicable to costs paid or incurred in taxable years beginning after Dec. 31, 2001, with respect to qualified employer plans first effective after such date, see section 619(d) of Pub. L. 107–16, as amended, set out as an Effective Date of 2001 Amendment note under section 38 of this title.

Download our app to see the most-to-date content.