{"identifier":"/us/usc/t26/s45E","title":26,"num":"\u00a7\u202f45E.","heading":"Small employer pension plan startup costs","text":"\u00a7\u202f45E.\nSmall employer pension plan startup costs\n(a)\nGeneral rule\nFor purposes of section 38, in the case of an eligible employer, the small employer pension plan startup cost credit determined under this section for any taxable year is an amount equal to 50 percent of the qualified startup costs paid or incurred by the taxpayer during the taxable year.\n(b)\nDollar limitation\nThe amount of the credit determined under this section for any taxable year shall not exceed\u2014\n(1) for the first credit year and each of the 2 taxable years immediately following the first credit year, the greater of\u2014\n(A) $500, or\n(B) the lesser of\u2014\n(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\n(ii) $5,000, and\n(2) zero for any other taxable year.\n(c)\nEligible employer\nFor purposes of this section\u2014\n(1)\nIn general\nThe term \u201celigible employer\u201d has the meaning given such term by section 408(p)(2)(C)(i).\n(2)\nRequirement for new qualified employer plans\nSuch term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a qualified employer plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan.\n(d)\nOther definitions\nFor purposes of this section\u2014\n(1)\nQualified startup costs\n(A)\nIn general\nThe term \u201cqualified startup costs\u201d means any ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with\u2014\n(i) the establishment or administration of an eligible employer plan, or\n(ii) the retirement-related education of employees with respect to such plan.\n(B)\nPlan must have at least 1 participant\nSuch term shall not include any expense in connection with a plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee.\n(2)\nEligible employer plan\nThe term \u201celigible employer plan\u201d means a qualified employer plan within the meaning of section 4972(d).\n(3)\nFirst credit year\nThe term \u201cfirst credit year\u201d means\u2014\n(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\n(B) at the election of the eligible employer, the taxable year preceding the taxable year referred to in subparagraph (A).\n(e)\nSpecial rules\nFor purposes of this section\u2014\n(1)\nAggregation rules\nAll persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (m) or (\no\n(2)\nDisallowance of deduction\nNo deduction shall be allowed\u2014\n(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\n(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.\n(3)\nElection not to claim credit\nThis section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.\n(4)\nIncreased credit for certain small employers\nIn the case of an employer which would be an eligible employer under subsection (c) if section 408(p)(2)(C)(i) was applied by substituting \u201c50 employees\u201d for \u201c100 employees\u201d, subsection (a) shall be applied by substituting \u201c100 percent\u201d for \u201c50 percent\u201d.\n(f)\nAdditional credit for employer contributions by certain eligible employers\n(1)\nIn general\nIn the case of an eligible employer, the credit allowed for the taxable year under subsection (a) (determined without regard to this subsection) shall be increased by an amount equal to the applicable percentage of employer contributions (other than any elective deferrals (as defined in section 402(g)(3)) by the employer to an eligible employer plan (other than a defined benefit plan (as defined in section 414(j))).\n(2)\nLimitations\n(A)\nDollar limitation\nThe amount determined under paragraph (1) (before the application of subparagraph (B)) with respect to any employee of the employer shall not exceed $1,000.\n(B)\nCredit phase-in\nIn 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\u2014\n(i) the amount otherwise so determined under paragraph (1), multiplied by\n(ii) a percentage equal to 2 percentage points for each employee of the employer for the preceding taxable year in excess of 50 employees.\n(C)\nWage limitation\n(i)\nIn general\nNo contributions with respect to any employee who receives wages from the employer for the taxable year in excess of $100,000 may be taken into account for such taxable year under subparagraph (A).\n(ii)\nWages\nFor purposes of the preceding sentence, the term \u201cwages\u201d has the meaning given such term by section 3121(a).\n(iii)\nInflation adjustment\nIn 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\u2014\n(I) such dollar amount, multiplied by\n(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 \u201ccalendar year 2007\u201d for \u201ccalendar year 2016\u201d in subparagraph (A)(ii) thereof.\nIf 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.\n(3)\nApplicable percentage\nFor purposes of this section, the applicable percentage for the taxable year during which the eligible employer plan is established with respect to the eligible employer shall be 100 percent, and for taxable years thereafter shall be determined under the following table:\nIn the case of the following taxable year beginning after the taxable year during which plan is established with respect to the eligible employer:\nThe applicable percentage shall be:\n1st\n100%\n2nd\n75%\n3rd\n50%\n4th\n25%\nAny taxable year thereafter\n0%\n(4)\nDetermination of eligible employer; number of employees\nFor purposes of this subsection, whether an employer is an eligible employer and the number of employees of an employer shall be determined under the rules of subsection (c), except that paragraph (2) thereof shall only apply to the taxable year during which the eligible employer plan to which this section applies is established with respect to the eligible employer.","url":"https://projectusc.org/usc/t26/s45E.html","content":[{"t":"sec","id":"/us/usc/t26/s45E","children":[{"t":"num","text":"\u00a7\u202f45E."},{"t":"heading","text":"Small employer pension plan startup costs"},{"t":"subsec","id":"/us/usc/t26/s45E/a","children":[{"t":"num","text":"(a)"},{"t":"heading","text":"General rule"},{"t":"content","children":[{"t":"p","text":"For purposes of section 38, in the case of an eligible employer, the small employer pension plan startup cost credit determined under this section for any taxable year is an amount equal to 50 percent of the qualified startup costs paid or incurred by the taxpayer during the taxable year.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s45E/b","children":[{"t":"num","text":"(b)"},{"t":"heading","text":"Dollar limitation"},{"t":"chapeau","text":"The amount of the credit determined under this section for any taxable year shall not exceed\u2014"},{"t":"para","id":"/us/usc/t26/s45E/b/1","children":[{"t":"num","text":"(1)"},{"t":"chapeau","text":" for the first credit year and each of the 2 taxable years immediately following the first credit year, the greater of\u2014"},{"t":"subpara","id":"/us/usc/t26/s45E/b/1/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" $500, or","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s45E/b/1/B","children":[{"t":"num","text":"(B)"},{"t":"chapeau","text":" the lesser of\u2014"},{"t":"clause","id":"/us/usc/t26/s45E/b/1/B/i","children":[{"t":"num","text":"(i)"},{"t":"content","text":" $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","tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s45E/b/1/B/ii","children":[{"t":"num","text":"(ii)"},{"t":"content","text":" $5,000, and","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s45E/b/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" zero for any other taxable year.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s45E/c","children":[{"t":"num","text":"(c)"},{"t":"heading","text":"Eligible employer"},{"t":"chapeau","text":"For purposes of this section\u2014"},{"t":"para","id":"/us/usc/t26/s45E/c/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"In general"},{"t":"content","children":[{"t":"p","text":"The term \u201celigible employer\u201d has the meaning given such term by section 408(p)(2)(C)(i).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s45E/c/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Requirement for new qualified employer plans"},{"t":"content","children":[{"t":"p","text":"Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a qualified employer plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s45E/d","children":[{"t":"num","text":"(d)"},{"t":"heading","text":"Other definitions"},{"t":"chapeau","text":"For purposes of this section\u2014"},{"t":"para","id":"/us/usc/t26/s45E/d/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"Qualified startup costs"},{"t":"subpara","id":"/us/usc/t26/s45E/d/1/A","children":[{"t":"num","text":"(A)"},{"t":"heading","text":"In general"},{"t":"chapeau","text":"The term \u201cqualified startup costs\u201d means any ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with\u2014"},{"t":"clause","id":"/us/usc/t26/s45E/d/1/A/i","children":[{"t":"num","text":"(i)"},{"t":"content","text":" the establishment or administration of an eligible employer plan, or","tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s45E/d/1/A/ii","children":[{"t":"num","text":"(ii)"},{"t":"content","text":" the retirement-related education of employees with respect to such plan.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s45E/d/1/B","children":[{"t":"num","text":"(B)"},{"t":"heading","text":"Plan must have at least 1 participant"},{"t":"content","children":[{"t":"p","text":"Such term shall not include any expense in connection with a plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s45E/d/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Eligible employer plan"},{"t":"content","children":[{"t":"p","text":"The term \u201celigible employer plan\u201d means a qualified employer plan within the meaning of section 4972(d).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s45E/d/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"First credit year"},{"t":"chapeau","text":"The term \u201cfirst credit year\u201d means\u2014"},{"t":"subpara","id":"/us/usc/t26/s45E/d/3/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" 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","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s45E/d/3/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" at the election of the eligible employer, the taxable year preceding the taxable year referred to in subparagraph (A).","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s45E/e","children":[{"t":"num","text":"(e)"},{"t":"heading","text":"Special rules"},{"t":"chapeau","text":"For purposes of this section\u2014"},{"t":"para","id":"/us/usc/t26/s45E/e/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"Aggregation rules"},{"t":"content","children":[{"t":"p","text":"All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (m) or (","children":[{"t":"text","text":"o","tail":") of section 414, shall be treated as one person. All eligible employer plans shall be treated as 1 eligible employer plan."}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s45E/e/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Disallowance of deduction"},{"t":"chapeau","text":"No deduction shall be allowed\u2014"},{"t":"subpara","id":"/us/usc/t26/s45E/e/2/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" 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","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s45E/e/2/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" 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.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s45E/e/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"Election not to claim credit"},{"t":"content","children":[{"t":"p","text":"This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s45E/e/4","children":[{"t":"num","text":"(4)"},{"t":"heading","text":"Increased credit for certain small employers"},{"t":"content","children":[{"t":"p","text":"In the case of an employer which would be an eligible employer under subsection (c) if section 408(p)(2)(C)(i) was applied by substituting \u201c50 employees\u201d for \u201c100 employees\u201d, subsection (a) shall be applied by substituting \u201c100 percent\u201d for \u201c50 percent\u201d.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s45E/f","children":[{"t":"num","text":"(f)"},{"t":"heading","text":"Additional credit for employer contributions by certain eligible employers"},{"t":"para","id":"/us/usc/t26/s45E/f/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"In general"},{"t":"content","children":[{"t":"p","text":"In the case of an eligible employer, the credit allowed for the taxable year under subsection (a) (determined without regard to this subsection) shall be increased by an amount equal to the applicable percentage of employer contributions (other than any elective deferrals (as defined in section 402(g)(3)) by the employer to an eligible employer plan (other than a defined benefit plan (as defined in section 414(j))).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s45E/f/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Limitations"},{"t":"subpara","id":"/us/usc/t26/s45E/f/2/A","children":[{"t":"num","text":"(A)"},{"t":"heading","text":"Dollar limitation"},{"t":"content","children":[{"t":"p","text":"The amount determined under paragraph (1) (before the application of subparagraph (B)) with respect to any employee of the employer shall not exceed $1,000.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s45E/f/2/B","children":[{"t":"num","text":"(B)"},{"t":"heading","text":"Credit phase-in"},{"t":"chapeau","text":"In 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\u2014"},{"t":"clause","id":"/us/usc/t26/s45E/f/2/B/i","children":[{"t":"num","text":"(i)"},{"t":"content","text":" the amount otherwise so determined under paragraph (1), multiplied by","tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s45E/f/2/B/ii","children":[{"t":"num","text":"(ii)"},{"t":"content","text":" a percentage equal to 2 percentage points for each employee of the employer for the preceding taxable year in excess of 50 employees.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s45E/f/2/C","children":[{"t":"num","text":"(C)"},{"t":"heading","text":"Wage limitation"},{"t":"clause","id":"/us/usc/t26/s45E/f/2/C/i","children":[{"t":"num","text":"(i)"},{"t":"heading","text":"In general"},{"t":"content","children":[{"t":"p","text":"No contributions with respect to any employee who receives wages from the employer for the taxable year in excess of $100,000 may be taken into account for such taxable year under subparagraph (A).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s45E/f/2/C/ii","children":[{"t":"num","text":"(ii)"},{"t":"heading","text":"Wages"},{"t":"content","children":[{"t":"p","text":"For purposes of the preceding sentence, the term \u201cwages\u201d has the meaning given such term by section 3121(a).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s45E/f/2/C/iii","children":[{"t":"num","text":"(iii)"},{"t":"heading","text":"Inflation adjustment"},{"t":"chapeau","text":"In 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\u2014"},{"t":"subclause","id":"/us/usc/t26/s45E/f/2/C/iii/I","children":[{"t":"num","text":"(I)"},{"t":"content","text":" such dollar amount, multiplied by","tail":"\n"}],"tail":"\n"},{"t":"subclause","id":"/us/usc/t26/s45E/f/2/C/iii/II","children":[{"t":"num","text":"(II)"},{"t":"content","text":" the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting \u201ccalendar year 2007\u201d for \u201ccalendar year 2016\u201d in subparagraph (A)(ii) thereof.","tail":"\n"}],"tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"\u2001If 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.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s45E/f/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"Applicable percentage"},{"t":"content","children":[{"t":"p","text":"For purposes of this section, the applicable percentage for the taxable year during which the eligible employer plan is established with respect to the eligible employer shall be 100 percent, and for taxable years thereafter shall be determined under the following table:","children":[{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"In the case of the following taxable year beginning after the taxable year during which plan is established with respect to the eligible employer:"}]},{"t":"p","children":[{"t":"text","text":"The applicable percentage shall be:"}]},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"1st"}]},{"t":"p","text":"100%"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"2nd"}]},{"t":"p","text":"75%"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"3rd"}]},{"t":"p","text":"50%"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"4th"}]},{"t":"p","text":"25%"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"Any taxable year thereafter"}]},{"t":"p","text":"0%"},{"t":"text","text":"\n"},{"t":"text","text":"\n","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s45E/f/4","children":[{"t":"num","text":"(4)"},{"t":"heading","text":"Determination of eligible employer; number of employees"},{"t":"content","children":[{"t":"p","text":"For purposes of this subsection, whether an employer is an eligible employer and the number of employees of an employer shall be determined under the rules of subsection (c), except that paragraph (2) thereof shall only apply to the taxable year during which the eligible employer plan to which this section applies is established with respect to the eligible employer.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"}]}]}