Tax Credit for Pension Plan Startup Costs ...

If you are an eligible employer who begins a new pension plan for your employees, you may be eligible to receive a tax credit of 50% of the first $1,000 of qualified startup costs of the plan. The credit is available for each of the first three years of the plan.

Eligible Employer

	You are an eligible employer if, during the preceding year, you had 100 or fewer employees who received at least $5,000 of compensation.
	The plan must cover at least one non-highly compensated employee.
	The employer must not have established or maintained any employer plan during the three tax-year period immediately preceding the first tax year in which the new plan is effective.

Qualified Startup Costs

Any ordinary and necessary expenses paid to 1) begin or administer an eligible employer plan and/or 2) educate employees about the plan.

Eligible Employer Plan

A plan that meets the requirements of a defined benefit or defined contribution plan including a 401(k) plan, SIMPLE plan or simplified employee pension.

Planning Note:                                                                                                                              To avoid a double tax benefit, qualified costs are not deductible to the extent they are effectively offset by the tax credit (Code Sec. 45E(e)(2) - 50% of the costs up to $1,000), as added by the 2001 Act. However, taxpayers should remember to claim deductions for the remaining qualified costs that are ordinary and necessary business expenses (Senate Finance Committee Report).