Credit map

What tax credits does a small business get for a retirement plan?

Four federal credits, all on Form 8881. The startup costs credit pays up to $5,000 a year for 3 years. The employer contributions credit pays up to $1,000 per employee a year for 5 years. The auto-enrollment credit adds $500 a year for 3 years, and the military spouse credit adds up to $500 per spouse a year for 3 years. All four are for employers with 100 or fewer employees, and they stack.

Checked against the tax code and Form 8881 (Rev. December 2025) on September 30, 2026. By Jason Meehl, founder of Reimbursa. Independent CPA review in progress.

At a glance

All four credits on one table.

Credit	What it pays	How long	Where you claim it	Lose the deduction?
Startup costs credit	100% of plan setup and running costs with 50 or fewer employees, 50% with 51 to 100. Yearly limit: the greater of $500 or $250 per eligible non-highly compensated employee, never more than $5,000.	3 years	Form 8881, line 5	Yes. Costs the credit covers are not also deductible.
Employer contributions credit	A share of what you contribute, capped at $1,000 of credit per employee a year. The share is 100% in years 1 and 2, then 75%, 50% and 25%, so reaching the $1,000 takes $1,334, $2,000 and $4,000 per employee in years 3 to 5. Employees paid over $110,000 (2026) do not count. With 51 to 100 employees, the credit is cut by 2% for each employee over 50.	5 years	Form 8881, line 6g	Yes. Contributions the credit covers are not also deductible.
Auto-enrollment credit	$500 a year when the plan signs employees up automatically.	3 years	Form 8881, line 9	No. Nothing to give back.
Military spouse credit	$200 per military spouse employee in the plan, plus your contributions for them up to $300. Up to $500 per person a year.	3 years per employee	Form 8881, lines 12 and 13	Ask your CPA.

Credit by credit

What it pays, who qualifies, the law behind it.

Startup costs credit

What it pays: 100% of plan setup and running costs with 50 or fewer employees, 50% with 51 to 100. Yearly limit: the greater of $500 or $250 per eligible non-highly compensated employee, never more than $5,000.
How long: 3 years
Who qualifies: Up to 100 employees who earned $5,000 or more last year, no qualified plan for the same employees in the past 3 years, and at least one non-highly compensated employee in the plan.
Where you claim it: Form 8881, line 5
Lose the deduction?: Yes. Costs the credit covers are not also deductible.
The law: 26 USC 45E(a), (b)

Employer contributions credit

What it pays: A share of what you contribute, capped at $1,000 of credit per employee a year. The share is 100% in years 1 and 2, then 75%, 50% and 25%, so reaching the $1,000 takes $1,334, $2,000 and $4,000 per employee in years 3 to 5. Employees paid over $110,000 (2026) do not count. With 51 to 100 employees, the credit is cut by 2% for each employee over 50.
How long: 5 years
Who qualifies: Same size test as the startup credit. Defined benefit plans do not qualify.
Where you claim it: Form 8881, line 6g
Lose the deduction?: Yes. Contributions the credit covers are not also deductible.
The law: 26 USC 45E(f)

Auto-enrollment credit

What it pays: $500 a year when the plan signs employees up automatically.
How long: 3 years
Who qualifies: Up to 100 employees who earned $5,000 or more last year. The plan must include an eligible automatic contribution arrangement. Works for a new plan or one you already have.
Where you claim it: Form 8881, line 9
Lose the deduction?: No. Nothing to give back.
The law: 26 USC 45T

Military spouse credit

What it pays: $200 per military spouse employee in the plan, plus your contributions for them up to $300. Up to $500 per person a year.
How long: 3 years per employee
Who qualifies: Up to 100 employees who earned $5,000 or more last year. The plan must let military spouses join within 2 months, match what others get after 2 years, and vest them at once.
Where you claim it: Form 8881, lines 12 and 13
Lose the deduction?: Ask your CPA.
The law: 26 USC 45AA

How they stack

The most a 20-person company could claim.

An illustration for a fictional company with 20 employees who are not highly compensated (owners not counted), all paid under the wage cap. It starts a 401(k) with automatic enrollment, spends at least $5,000 a year to run it, and puts in $1,000 for each employee every year. Real plans usually cost less, so the startup credit is usually smaller.

Year	Startup costs	Contributions	Auto-enrollment	Total
1	$5,000	$20,000	$500	$25,500
2	$5,000	$20,000	$500	$25,500
3	$5,000	$15,000	$500	$20,500
4	$0	$10,000	$0	$10,000
5	$0	$5,000	$0	$5,000
Total	$15,000	$70,000	$1,500	$86,500

The company puts in $100,000 over five years and gives up the deduction on the $85,000 the startup and contribution credits cover. If it raised its contribution to $1,334, $2,000 and $4,000 per employee in years 3, 4 and 5, the contribution credit would stay at $20,000 a year, $100,000 in all. Use the estimator for your own numbers.

What does not earn a credit

The state program meets the rule and pays nothing.

In the 15 states with a mandate, signing staff up for the state auto-IRA is free and keeps you compliant, but it earns no federal credit. Your own 401(k), SIMPLE or SEP meets the same rule and earns the credits above. Joining the state program first generally does not block them later.

Straight answers

Retirement credit questions.

What tax credits can a small business get for starting a retirement plan?

Four federal credits, all claimed on Form 8881: the startup costs credit (up to $5,000 a year for 3 years), the employer contributions credit (up to $1,000 per employee a year for 5 years), the auto-enrollment credit ($500 a year for 3 years) and the military spouse credit (up to $500 per spouse a year for 3 years).

Can I claim all four credits at once?

Yes. They are separate credits on separate lines of the same form. A company that starts a 401(k) with automatic enrollment and contributes for its employees can claim the first three in the same year, and the fourth if it employs a military spouse.

Does a SIMPLE IRA or SEP earn these credits?

For the startup and contribution credits, yes: they cover qualified employer plans, including a 401(k), a SIMPLE IRA and a SEP (the contribution credit excludes defined benefit plans). The auto-enrollment credit needs an eligible automatic contribution arrangement, and the military spouse credit needs a defined contribution plan with its own entry and vesting rules, so confirm your plan type with your CPA.

Does joining my state’s auto-IRA program earn a credit?

No. State programs are free for the employer but earn no federal credit. Your own plan meets the same state rule and earns the credits. Joining the state program first generally does not block the credits later.

What if my business has no tax to offset?

The credits are nonrefundable, so they only reduce tax you owe. Unused credit carries forward to later years. In a partnership or S corporation, the credit passes through to the owners.

See what your company would get.

Enter your headcount and plan type. The estimator applies every rule on this page.

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HOW WE CHECK

Every figure comes from the tax code section linked next to it or from the Form 8881 instructions. The $110,000 wage cap is the 2026 figure from IRS Notice 2025-67. The stacking table is an illustration for a fictional company, not a promise.

This page is general information, not tax advice. Reimbursa is not a tax return preparer, a plan fiduciary or a retirement plan provider. Found an error? Email hello@reimbursa.com and we will fix it.

Written by Jason Meehl, founder of Reimbursa. Last checked on September 30, 2026.