You’ve probably heard people talk about a “$16,500 tax credit” for small businesses.
So you’re wondering:
Is this real?
How do I qualify?
And how do I actually get the money without a headache?
Let’s break it down.
What Is the SECURE Act 2.0 Small Business Tax Credit?
If you own a small business, the SECURE Act 2.0 Small Business Tax Credit can be a game-changer. It’s a set of tax perks that help you start and run a retirement plan for your employees—think 401(k) or similar.
To make it easier, new provisions under the SECURE Act 2.0 allow eligible small businesses to tap into two separate tax credits and claim up to $16,500 in tax credits over 3 years.
This isn’t a tax deduction — it’s a tax credit.
That means dollar-for-dollar savings on your tax bill.
Breaking Down the Potential $16,500
The “up to $16,500” number comes from adding:
- The Startup Credit — offsets qualified retirement plan startup costs
- The Auto-Enrollment Credit — rewards you for including automatic enrollment in your plan
Startup Cost Tax Credit (Up to $15,000 Over 3 Years)
If you’re launching a new retirement plan, this credit can wipe out most of your setup expenses.
For businesses with 50 or fewer employees:
- You can get back 100% of your qualifying startup costs, but it’s capped at $5,000 a year.
- Calculated as the greater of:
- $500 flat, or
- The lesser of:
- $250 × the number of non-highly compensated employees (NHCEs) eligible to join, or
- $5,000.
For businesses with 51–100 employees:
- You’ll get 50% of your first $10,000 in qualifying expenses, up to $5,000 a year.
- The math works the same way as above — greater of $500, or $250 × NHCEs (max $5,000).
You can claim it for 3 years — meaning up to $15,000 total.
Qualifying costs include:
- Drafting plan documents
- Consulting or administrative fees
- Employee education about the plan
Add automatic enrollment to your plan and the IRS gives you an extra $500/year for 3 years.
- Works for new plans that start with auto-enrollment
- Also applies to existing plans that add it
- Available even if you’re also claiming the Startup Cost Credit
The law just says “auto-enrollment feature” — it doesn’t have to be an EACA specifically.
Bonus: Employer Contribution Credit
This one’s pretty sweet — the SECURE Act 2.0 lets small businesses get a credit for making contributions to their employees’ retirement accounts during the first five years of the plan.
If you’ve got 50 or fewer employees, here’s the usual breakdown:
| Year | Credit Allowed | Employer Contribution required (per participant) to receive maximum $1000 credit |
| 1 | 100% | $1000 |
| 2 | 100% | $1000 |
| 3 | 75% | $1334 |
| 4 | 50% | $2000 |
| 5 | 25% | $4000 |
Source: Human Interest
Important Note: These percentages apply to contributions made for employees who earned less than $100,000 in the previous year (amount adjusted annually for inflation), up to $1,000 per employee each year. For businesses with 51–100 employees, the credit phases out by 2% for each employee over 50.
How to Claim the Small Business Tax Credit
- Use Form 8881 — “Credit for Small Employer Pension Plan Startup Costs
- File it with your business tax return.
- Keep documentation of setup costs, invoices, payroll, and plan details.
Tips to Maximize the Credit
- Set up your plan early in the year to get the full first-year credit.
- Add auto-enrollment from the start to grab the extra $500/year.
- Work with a CFP® or tax professional who’s handled retirement plan credits before.
Final Thoughts
If you own a small business, this is the IRS handing you up to $16,500 to start a retirement plan.
It’s real.
It’s not complicated.
And it’s one of the easiest ways to invest in your team and cut your taxes.
FAQs About the $16,500 Small Business Tax Credit
Yes — as long as you meet the eligibility rules.
Not for the Startup Plan Credit — that one’s only for businesses that haven’t offered a similar plan in the last 3 years.
However, if you already have a SIMPLE IRA or SEP IRA and add an auto-enrollment feature, you could still qualify for the Auto-Enrollment Credit
No — it reduces your tax liability but won’t create a refund beyond that.
Pedro Gomez is the new Student Loan Sherpaand a Certified Financial Planner™with over a decade of experience helping clients navigate complex financial decisions. He is the founder of Global Financial Plan, where he writes about international living, geoarbitrage, and strategies for retiring young, and also leads Brickell Financial Group, a registered investment advisory firm focused on accelerating financial freedom.
Pedro is the architect behind the “12 Levels of Financial Freedom” framework and blends student loan strategy with long-term planning, tax efficiency, and investing. His work is especially geared toward upwardly mobile professionals, entrepreneurs, and those looking to design a life beyond the default path.
Pedro is available for strategy sessions and press inquiries.