26 USC 45 - Small employer pension plan startup costs

View all text of Subpart D [§ 38 - § 45AA]

§ 45E. Small employer pension plan startup costs

(a) General rule

(b) Dollar limitationThe 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.

(1) In general

(2) Requirement for new qualified employer plans

(d) Other definitionsFor purposes of this section—

(1) Qualified startup costs

(A) In generalThe 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

(2) Eligible employer plan

(3) First credit yearThe 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 with respect to the eligible employer, or

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

(e) Special rulesFor purposes of this section—

(1) Aggregation rules

(2) Disallowance of deductionNo deduction shall be allowed—

(A) for that portion of the qualified startup costs paid or incurred for the taxable year which is equal to so much of the portion of the credit determined under subsection (a) as is properly allocable to such costs, and

(B) for that portion of the employer contributions by the employer for the taxable year which is equal to so much of the credit increase determined under subsection (f) as is properly allocable to such contributions.

(3) Election not to claim credit

(4) Increased credit for certain small employers

(f) Additional credit for employer contributions by certain eligible employers

(1) In general

(2) Limitations

(A) Dollar limitation

(B) Credit phase-inIn the case of any eligible employer which had for the preceding taxable year more than 50 employees, the amount determined under paragraph (1) (without regard to this subparagraph) shall be reduced by an amount equal to the product of—

(i) the amount otherwise so determined under paragraph (1), multiplied by

(ii) a percentage equal to 2 percentage points for each employee of the employer for the preceding taxable year in excess of 50 employees.

(i) In general

(ii) Wages

(iii) Inflation adjustmentIn the case of any taxable year beginning in a calendar year after 2023, the $100,000 amount under clause (i) shall be increased by an amount equal to—(I) such dollar amount, multiplied by(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2007” for “calendar year 2016” in subparagraph (A)(ii) thereof.

If any amount as adjusted under this clause is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.

(3) Applicable percentage

(4) Determination of eligible employer; number of employees

(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; Pub. L. 117–328, div. T, title I, §§ 102(a)–(c), 111(a), Dec. 29, 2022, 136 Stat. 5277, 5278, 5293.)