I have an SCorp with 1 member and 2 additional family members on payroll. Total wages for 2023 for all 3 was $107k. If they elect to do a SEP (no current retirement plan in place) with 25% match of compensation, they could end up with almost a $28k credit?
So if an S-corp started a 401K in 2022 and has 4 eligible employees including the sole shareholder in both 2022 and 2023, but only the shareholder chose to participate in 2023, then the company would potentially qualify for up to $250 x 3 =$750 of §45E(e) startup expense credit.
Then, if the shareholder has Medicare wages of less than $100K for 2023 the company would qualify for up to $1,000 (because it is the second year of the plan) of §45E(f) contribution credit.
Am I interpreting this correctly? This article is extremely helpful and illuminating!
Great article Tom! Does the credit under 45(E)(f) require that the business owner have at least 1 non-owner working for the business or can a business owner with no employees claim the credit? There isn't a lot of guidance out yet, but with the references, it sounds like a business owner with no employees could qualify. (The credit for the startup costs, however, is different). Thank you for your thoughts!
Notice 2024-02 has pretty detailed guidance. I agree with your observation and noticed that when I studied the provision. However, if the owner has a salary of greater than $100,000, they would be ineligible.
I have an SCorp with 1 member and 2 additional family members on payroll. Total wages for 2023 for all 3 was $107k. If they elect to do a SEP (no current retirement plan in place) with 25% match of compensation, they could end up with almost a $28k credit?
No. $3,000 maximum.
Thank you Tom. I don't know how I missed "however, §45E(f)(2)(A) limits the employer contribution credit to $1,000 per employee per tax year"
So if an S-corp started a 401K in 2022 and has 4 eligible employees including the sole shareholder in both 2022 and 2023, but only the shareholder chose to participate in 2023, then the company would potentially qualify for up to $250 x 3 =$750 of §45E(e) startup expense credit.
Then, if the shareholder has Medicare wages of less than $100K for 2023 the company would qualify for up to $1,000 (because it is the second year of the plan) of §45E(f) contribution credit.
Am I interpreting this correctly? This article is extremely helpful and illuminating!
It is eligible to participate, not actual participation.
Great article Tom! Does the credit under 45(E)(f) require that the business owner have at least 1 non-owner working for the business or can a business owner with no employees claim the credit? There isn't a lot of guidance out yet, but with the references, it sounds like a business owner with no employees could qualify. (The credit for the startup costs, however, is different). Thank you for your thoughts!
Notice 2024-02 has pretty detailed guidance. I agree with your observation and noticed that when I studied the provision. However, if the owner has a salary of greater than $100,000, they would be ineligible.
For an S-corp with more than one eligible employee, does the shareholder's salary include SEHI in box 1, or are we only counting box Medicare wages?
Wages as defined in 3121(a), so I believe that would be Medicare wages.
Thanks!