--- title: Small-Business Retirement Plan Tax Credits You Don’t Want to Miss description: Discover how small businesses can leverage expanded federal tax credits to start or enhance retirement plans, reducing costs while boosting employee benefits. image: https://castlerockpep.com/hubfs/Castle%20Rock%20Logo-1.jpg --- [Skip to content](https://castlerockpep.com/water-cooler-wisdom/small-business-retirement-plan-tax-credits-you-dont-want-to-miss#main-content) ![Castle Rock Logo](https://castlerockpep.com/hs-fs/hubfs/Castle%20Rock%20Logo%202026-1.png?width=1536&height=1024&name=Castle%20Rock%20Logo%202026-1.png) - [Home](https://castlerockpep.com/) - [About Us](https://castlerockpep.com/about) Show submenu for About Us - [Community Page](https://castlerockpep.com/community) - [Blog](https://castlerockpep.com/water-cooler-wisdom) - [Contact Us](https://castlerockpep.com/contact-us) - [Pooled Employer Plan](https://castlerockpep.com/pooled-employer-plan-1) Show submenu for Pooled Employer Plan - [Investment Options](https://castlerockpep.com/investments) - [Pricing](https://castlerockpep.com/pricing-new) - [Plan Design Choices](https://castlerockpep.com/plandesigns) - [Who We Serve](https://castlerockpep.com/who-we-serve) Show submenu for Who We Serve - [Colorado Businesses](https://castlerockpep.com/who-we-serve/colorado-businesses) - [Women-Owned Businesses](https://castlerockpep.com/who-we-serve/women-owned-businesses) - [Fiduciary Tool Belt](https://castlerockpep.com/-fiduciary-tool-belt) Show submenu for Fiduciary Tool Belt - [ERISA Plan Governance](https://castlerockpep.com/erisa-plan-governance) - [ERISA Fiduciary Training](https://castlerockpep.com/fiduciary-training) - [Regulators and Audits](https://castlerockpep.com/regulators-and-audits) Open main navigation Close main navigation - [Home](https://castlerockpep.com/) - [About Us](https://castlerockpep.com/about) Show submenu for About Us - [Community Page](https://castlerockpep.com/community) - [Blog](https://castlerockpep.com/water-cooler-wisdom) - [Contact Us](https://castlerockpep.com/contact-us) - [Pooled Employer Plan](https://castlerockpep.com/pooled-employer-plan-1) Show submenu for Pooled Employer Plan - [Investment Options](https://castlerockpep.com/investments) - [Pricing](https://castlerockpep.com/pricing-new) - [Plan Design Choices](https://castlerockpep.com/plandesigns) - [Who We Serve](https://castlerockpep.com/who-we-serve) Show submenu for Who We Serve - [Colorado Businesses](https://castlerockpep.com/who-we-serve/colorado-businesses) - [Women-Owned Businesses](https://castlerockpep.com/who-we-serve/women-owned-businesses) - [Fiduciary Tool Belt](https://castlerockpep.com/-fiduciary-tool-belt) Show submenu for Fiduciary Tool Belt - [ERISA Plan Governance](https://castlerockpep.com/erisa-plan-governance) - [ERISA Fiduciary Training](https://castlerockpep.com/fiduciary-training) - [Regulators and Audits](https://castlerockpep.com/regulators-and-audits) - [Join the PEP](https://castlerockpep.com/join-castle-rock-pep) [Join the PEP](https://castlerockpep.com/join-castle-rock-pep) Sep 3, 2025, 3:08:50 PM # Small-Business Retirement Plan Tax Credits You Don’t Want to Miss [Michele Suriano](https://castlerockpep.com/water-cooler-wisdom/author/michele-suriano) Share: [facebook-f icon](http://www.facebook.com/share.php?u=https://castlerockpep.com/water-cooler-wisdom/small-business-retirement-plan-tax-credits-you-dont-want-to-miss) [linkedin-in icon](http://www.linkedin.com/shareArticle?mini=true&url=https://castlerockpep.com/water-cooler-wisdom/small-business-retirement-plan-tax-credits-you-dont-want-to-miss) [Twitter icon](https://twitter.com/intent/tweet?url=https://castlerockpep.com/water-cooler-wisdom/small-business-retirement-plan-tax-credits-you-dont-want-to-miss) [pinterest-p icon](http://pinterest.com/pin/create/link/?url=https://castlerockpep.com/water-cooler-wisdom/small-business-retirement-plan-tax-credits-you-dont-want-to-miss) [envelope icon](mailto:?body=https://castlerockpep.com/water-cooler-wisdom/small-business-retirement-plan-tax-credits-you-dont-want-to-miss) If you’re a business with 100 or fewer employees, SECURE 2.0 made the federal tax credits for offering a retirement plan substantially richer—and easier to stack. Below is a plain-English guide to the three credits most small employers can use when they launch or refresh a plan (including when joining a pooled employer plan, or PEP). This article is educational and not tax advice. Work with your CPA to confirm eligibility and amounts. **The Big Picture** SECURE 1.0 (2019) introduced small-employer retirement plan credits. SECURE 2.0 (2022) **expanded** them, especially for employers with **50 or fewer employees**, and clarified how the credits apply across the first five years of a plan. Credits reduce tax **liability** dollar-for-dollar (they’re *not* deductions).   **Credit #1: Startup (Administrative) Costs — up to $5,000/year for 3 years** **What it covers:** Eligible “startup” costs for establishing a new plan (e.g., administrative/recordkeeping, plan setup). **Who qualifies:** Generally, employers with **100 or fewer** employees, **starting a new plan** (no substantially similar plan covering the same employees in the prior three years). **How much:** - **1–50 employees:** **100%** of eligible startup costs, up to the cap - **51–100 employees:** **50%** of eligible costs, up to the cap - **Cap/Formula:** The credit is the **lesser of** (a) **$250 × eligible employees** (with a **$500 minimum**) **or** (b) **$5,000** - **Duration:** First **three** years the plan is in place **Example:** - 10 eligible employees → $250 × 10 = **$2,500** credit (years 1–3) - 20+ eligible employees → capped at **$5,000** (years 1–3) **Remember:** This is a **credit**, not a deduction—if the calculated credit is $2,000, your tax bill is reduced by $2,000.   **Credit #2: Auto-Enrollment (EACA/QACA) $500/year for up to 3 years** **What it covers:** Adding automatic enrollment (EACA or QACA) to a new or existing plan. **Who qualifies:** Employers with **100 or fewer** employees who earned **$5,000+** in the preceding year. **How much:** **$500** in the year auto-enroll first applies **and** in each of the **next two** years (no tiering or phase-out like the startup credit). **Good news:** This applies to **new plans** and to **existing plans** that **add** auto-enrollment. Employees may still opt out.   **Credit #3: Employer Contributions — up to $1,000 per employee** **What it covers:** Employer **matching or nonelective** contributions for employees who earn **$100,000 or less** in FICA wages (indexed). **Who qualifies:** Employers with **100 or fewer** employees who earned at least $5,000 in the preceding year. For **51–100** employees, a reduction applies. **How much and how it phases down:** - **Years 1–2:** **100%** of eligible employer contributions, **up to $1,000 per employee** - **Year 3:** **75%** of eligible contributions (still subject to the $1,000 cap per employee) - **Year 4:** **50%** - **Year 5:** **25%** - **51–100 employees:** Reduce the credit by **2% for each employee over 50** (applied to the credit amount) **Examples:** - **50 employees** each receiving a $1,000 employer contribution - Year 1: **$50,000** credit - Year 2: **$50,000** - Year 3: **$37,500** - Year 4: **$25,000** - Year 5: **$12,500** - **Five-year total:** **$175,000** - **75 employees (assume all ≤$100k) — with the 2% per-employee reduction above 50** - Year 1 (baseline $75,000) reduced by 50% → **$37,500** - Year 2: **$37,500** - Year 3: **$28,125** - Year 4: **$18,750** - Year 5: **$9,375** - **Five-year total:** **$131,250**   **Stacking the Credits: A “20-Employee” Scenario** Assume you start a plan for **20 employees** (each earns ≤$100k), add **auto-enroll**, and contribute **$1,000** per employee: - **Startup credit:** $5,000 in each of **years 1–3** = **$15,000** - **Auto-enroll credit:** $500 in each of **years 1–3** = **$1,500** - **Contribution credit:** - Year 1: $20,000 - Year 2: $20,000 - Year 3: $15,000 - Year 4: $10,000 - Year 5: $5,000 - **Five-year contribution credit total:** **$70,000** - **Grand total over five years:** **$86,500** in credits That’s a powerful offset to the cost of offering a high-quality plan—and a big boost to getting your team invested in their future.   **Practical Eligibility Notes (What Trips Employers Up)** - **“New plan” requirement:** The startup credit is for **new** plans. If you had a plan in any of the **prior three years** that covered substantially the same employees, you can’t take the startup credit. (Auto-enroll and contribution credits may still be in play.) - **Employee counts matter:** Several provisions look at the **number of employees** (and, for the contribution credit, apply a reduction for **51–100** employees). - **Wage ceiling for the contribution credit:** Only contributions made for employees with **≤$100,000** in FICA wages (indexed) count toward the $1,000 per-employee cap. - **Credit vs. deduction:** Credits reduce **tax due** dollar-for-dollar; you’ll coordinate credits with any deductions your CPA claims.   **Why many small employers choose a PEP** Pairing these credits with a **Pooled Employer Plan (PEP)** can amplify the operational benefits: you outsource most administrative and fiduciary duties, leverage pooled pricing, and simplify the experience for HR and employees. For many teams, the credits offset a significant share of the early-year costs while a PEP structure reduces the ongoing workload.   **Next steps** 1. **Estimate your credits** (startup, auto-enroll, and employer contributions) based on your headcount and intended plan design online at [https://castlerockpep.com/employer-resources](https://castlerockpep.com/employer-resources). 2. **Talk to your CPA** to confirm eligibility and how the credits apply to your specific situation. 3. **Choose your plan path**—stand-alone or PEP—and select auto-enrollment if appropriate. 4. **Set your timeline** to capture year-one credits and make the most of years 1–5. *Disclaimer: This post summarizes federal provisions at a high level. It is not tax, legal, or investment advice. Consult your professional advisors before acting.*  This content was prepared with the assistance of artificial intelligence tools and reviewed by Castle Rock Investment Company for accuracy and completeness.   [Pooled Employer Plan](https://castlerockpep.com/water-cooler-wisdom/tag/pooled-employer-plan), [Castle Rock PEP](https://castlerockpep.com/water-cooler-wisdom/tag/castle-rock-pep), [Retirement Plans](https://castlerockpep.com/water-cooler-wisdom/tag/retirement-plans) ## Related posts [![Picture of lots of cash](https://cdn.marblism.com/kgMIiIERMNe.webp)](https://castlerockpep.com/water-cooler-wisdom/the-1500-irs-thank-you-why-solo-business-owners-should-act-now-for-2025) [Pooled Employer Plan](https://castlerockpep.com/water-cooler-wisdom/tag/pooled-employer-plan), [Castle Rock PEP](https://castlerockpep.com/water-cooler-wisdom/tag/castle-rock-pep), [Retirement Plans](https://castlerockpep.com/water-cooler-wisdom/tag/retirement-plans), [Compliance](https://castlerockpep.com/water-cooler-wisdom/tag/compliance), [Women Business Owners](https://castlerockpep.com/water-cooler-wisdom/tag/women-business-owners) ## [The $1,500 IRS 'Thank You': Why Solo Business Owners Should Act Now for 2025](https://castlerockpep.com/water-cooler-wisdom/the-1500-irs-thank-you-why-solo-business-owners-should-act-now-for-2025) [Michele Suriano](https://castlerockpep.com/water-cooler-wisdom/author/michele-suriano) Jan 28, 2026, 3:33:16 PM Let's be honest: when was the last time the IRS sent you a thank-you note? 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