For your clients
These credits reduce the business’s tax directly. They’re worth raising with any small-business client that doesn’t have a retirement plan.
Credit for startup costs
For employers with 50 or fewer employees, the credit equals 100% of the plan’s qualified startup costs, including annual administration. It’s capped at the greater of $500 or $250 for each eligible non-highly compensated employee, up to $5,000 a year for three years.
In 2026, non-highly compensated employees are those who earned $160,000 or less in 2025 and own 5% or less of the business. The credit isn’t available to an employer that already has a plan and is adding a second one.
For employers with 51 to 100 employees, the calculation is the same but the credit is 50% of startup costs, still up to $5,000 a year.
| Eligible non-highly compensated employees | Startup credit |
|---|---|
| 2 or fewer | $500 |
| 15 | $3,750 |
| 20 or more | $5,000 (maximum) |
Credit for employer contributions
SECURE 2.0 added a credit for employer contributions to a 401(k) or profit sharing plan (not defined benefit or cash balance plans). It covers up to $1,000 per employee earning $100,000 or less, and phases out over five years. For employers with 51 to 100 employees, it’s reduced by 2% for each employee over 50.
| Plan year | Credit |
|---|---|
| Years 1 and 2 | 100% |
| Year 3 | 75% |
| Year 4 | 50% |
| Year 5 | 25% |
Credit for automatic enrollment
Small employers that add automatic enrollment to a new or existing 401(k) get $500 a year for three years, on top of the startup credit. A business with 15 eligible non-highly compensated employees would get $3,750 plus $500, or $4,250 for the year.
SECURE 2.0 requires most new 401(k) plans established from 2025 on to include automatic enrollment.