Personal Finance (Not Investing) • Employer Contribution Credit for Solo 401k?

Tax credit for plan contributions

Small employers may claim a tax credit for plan contributions made to a defined contribution plan, SEP or SIMPLE IRA plan. The tax credit is not available for contributions to employees earning more than $100,000 (for 2023). [See quote below where Notice 2024-2 provides commentary]

For employers with 1-50 employees, the tax credit available for each participant is:

First plan year: 100% of contribution, up to $1,000
Second plan year: 100% of contribution, up to $1,000
Third plan year: 75% of contribution, up to $1,000
Fourth plan year: 50% of contribution, up to $1,000
Fifth plan year: 25% of contribution, up to $1,000

Source: https://www.irs.gov/retirement-plans/re ... tax-credit

Q. B-6: Is an eligible employer permitted to take into account, for purposes of determining the employer contributions credit under section 45E(f) for a taxable year, contributions to an individual who does not have wages as defined in section 3121(a) in excess of the $100,000 (indexed for inflation) wage limitation set forth in section 45E(f)(2)(C) for the taxable year, even if the individual has earned income that is not wages as defined in section 3121(a) for the taxable year in excess of the $100,000 amount or the individual is a state or local government employee with remuneration in excess of the $100,000 amount whose services are excluded from employment under section 3121(b)(7)?

A. B-6: Yes. The $100,000 (indexed for inflation) wage limitation set forth in section 45E(f)(2)(C), under which no contributions with respect to any individual who receives wages from the employer for a taxable year in excess of $100,000 (indexed for inflation) may be taken into account for purposes of determining employer contributions credits for the taxable year, only applies with respect to an individual who has wages as defined in section 3121(a) that are in excess of the wage limitation for the taxable year. Accordingly, contributions with respect to an individual who does not have any wages as defined in section 3121(a) for a taxable year because the individual is self-employed (including a partner) or because the individual is a state or local government employee whose services are excluded from employment under section 3121(b)(7) (and, thus, does not have wages as defined in section 3121(a)) may be taken into account for purposes of determining employer contributions credits for the taxable year, even if the individual has earned income or remuneration from a state or local government in excess of the $100,000 wage limitation..

Source: https://www.irs.gov/forms-pubs/notice-2 ... ct-of-2022

Statistics: Posted by blahman — Fri Nov 01, 2024 12:34 am — Replies 11 — Views 1166