Maximizing Your Small Business Retirement Benefits: The IRS “Retirement Plans Start-Up Credit (March 2026 TogetHR Times)

If you’ve been noticing or following retirement plan changes under SECURE Act 2.0, you may know it expanded incentives for small businesses to offer retirement plans. The “Retirement Plans Start-Up Credit,” claimed using IRS Form 8881, is an existing tax credit that was enhanced under SECURE 2.0. These updates include higher credits for start-up costs, additional credits for employer contributions, and incentives for plans with auto-enrollment. These are all designed to make it easier and more rewarding for small businesses to support employees’ retirement savings.

Small businesses that offer retirement plans to their employees can benefit from more than just helping their team save for the future - they may also qualify for a tax credit from the IRS.

The “Retirement Plans Start-Up Credit,” claimed using IRS Form 8881, is designed to encourage small businesses to set up and contribute to retirement plans like 401(k)s, SIMPLE IRAs, or profit-sharing plans.

Here’s what you need to know

Who qualifies:
Small businesses with 100 or fewer employees who earn $5,000 or more in the previous year may be eligible.

What the credit covers:
The credit is based on qualified contributions your company makes to employees’ retirement plans, including plan start-up costs. It’s a dollar-for-dollar reduction in your business tax liability, making it a valuable incentive.

How to claim it:
Businesses claim the credit by completing IRS Form 8881 and filing it with their tax return for the year the contributions were made. Many payroll platforms, like Gusto, do a preliminary calculation and send an estimated credit to their customers as a nudge to check eligibility. The form is then provided for your accountant to file.

Why it matters:
Even if your business already contributes to employee retirement plans, this credit can offset a portion of your costs, reducing your overall tax bill while helping your employees save for the future.

What many business owners don’t know:
Awareness of the “Retirement Plans Start-Up Credit” is surprisingly low. Many small business owners don’t realize they could qualify, even if they already have a 401(k) plan. The credit is often underutilized because it’s technical, depends on plan contributions, and sometimes accountants don’t proactively mention it. 

Next steps:
If you’re a small business owner, check with your accountant to see if you qualify for the credit. Forward any notices or estimates from your payroll provider (like Gusto), and they can help ensure the credit is properly claimed.

By taking advantage of this credit, small businesses can make retirement plans more affordable, support their employees’ financial security, and reduce their own tax liability.