Startup Auto Enroll Tax Credit - Owner and Spouse Only Plan

[Pensions2020]

Would they be able to receive $500 tax credit for adding auto enroll in Plan? It is only Owner and spouse in Plan. I know this isn't the spirit of the tax credit but if it is in Plan Document would it be able to be used? If anyone would be hired they'd be auto enrolled.

I'm of the understanding that they wouldn't qualify for any of the other tax credits since there are no HCEs.

[Lou S.]

I'm pretty sure the Plan must cover at least 1 NHCE to be eligible for the credit.

[ErnieG]

Lou S. correct it only applies to each employee who is not a Highly Compensated Employee (HCE) who is eligible to participate in the Plan.  It would not apply to Owner-Only Plans.

[C. B. Zeller]

The small employer startup credit of IRC § 45E has a requirement that the plan cover at least one participant who is not a highly compensated employee.

However I believe the original question was about the auto-enrollment credit of IRC § 45T, which does not contain the same requirement. The requirements under 45T are that the plan be a qualified employer plan as defined in 4972(d), that the plan include an EACA as defined in 414(w)(3), and that the employer is an eligible employer as defined in 408(p)(2)(C)(i). Scanning each of those sections, I do not see anything that would restrict the ability of an employer to claim the credit merely because their plan does not cover any NHCEs.

[ErnieG]

C.B.:  Agreed, there is no reference in 45T that a Plan must cover at least one non HCE.  Curious if there will be a correction on this.

[Lou S.]

I'd be happy to be wrong, but it does seem to be out of the spirit and intent of the law. But who knows, Congress acts in mysterious ways sometimes.

[Peter Gulia]

Even if the credit might be correct, some might be reluctant, for such a small amount, to invite any IRS attention.