SECURE 2.0 Tax Credits
Franchise 401(k) Tax Credits Under SECURE 2.0
Starting a 401(k) for your franchise can cost far less than you think. Federal SECURE 2.0 credits can offset your startup costs, your employer contributions, and your auto-enrollment — and we complete IRS Form 8881 so you can claim them.
The Short Version
- Startup costs credit: up to 100% of eligible plan costs — up to $5,000/year for 3 years (up to $15,000).
- Employer contributions credit: up to $1,000 per eligible employee, for up to 5 years (phasing down after year two).
- Auto-enrollment credit: a flat $500/year for 3 years ($1,500 total).
- An eligible business with 11 credit-eligible employees could see up to $14,250 in potential credits in year one.
- All claimed on IRS Form 8881 — which our team completes on your behalf.
The Three Credits
What SECURE 2.0 gives franchise owners
Credit 1 · Section 45E
100%
of startup costs · up to $5,000/yr × 3
Startup Costs Credit
Employers with 1–50 employees can claim 100% of eligible plan startup and administration costs, up to $250 for each eligible non-highly compensated employee (minimum $500, maximum $5,000) per year for the first three years, up to $15,000 total. Businesses with 51–100 employees claim 50%.
Credit 2 · Section 45E
$1,000
per eligible employee · up to 5 years
Employer Contributions Credit
A credit on employer contributions of up to $1,000 per eligible employee (those earning $110,000 or less in 2026): 100% in years 1–2, then 75%, 50%, and 25% in years 3–5. Reduced for employers with more than 50 employees.
Credit 3 · Section 45T
$500
per year × 3 years
Auto-Enrollment Credit
Automatic enrollment is now standard on most new plans — and it carries a flat $500 per year credit for three years ($1,500 total) when your plan includes an eligible auto-enrollment arrangement.
Figures shown are federal statutory maximums under SECURE 2.0 as currently enacted. Whether your business qualifies, and for how much, depends on employee count, employee compensation, actual startup costs incurred, employer contributions made, controlled-group status, and your business's tax position. Credits are non-refundable and limited by tax liability. Nothing on this page is tax advice — confirm eligibility and amounts with your tax professional.
The Payoff
What it can offset
For an eligible business with 11 credit-eligible employees, the credits could total up to $14,250 in year one, before the multi-year credits even compound.
$15,000
Maximum startup credit over three years
$1,000
Per eligible employee, per year, up to five years
$1,500
Auto-enrollment credit over three years
The $14,250 figure is illustrative: $2,750 in startup credit ($250 for each of the 11 employees, assumed to be non-highly compensated and eligible for the plan), $500 in auto-enrollment credit, and $11,000 in contribution credits at the year-one 100% rate. It assumes the employer has 50 or fewer employees, incurs at least $2,750 in eligible startup costs, makes employer contributions of at least $1,000 for each of the 11 employees, each earning $110,000 or less in 2026, and has sufficient tax liability to absorb the credits. The startup credit reaches its $5,000 cap with 20 eligible non-highly compensated employees. Your figure will differ. Consult your tax professional.
Beyond the Credits
Credits offset what you pay. The stack offsets what you owe.
SECURE 2.0 Credits
~$14,250
A fixed, capped offset against your plan's setup and operating cost — real money, worth claiming, but a one-time-plus-multi-year credit, not an ongoing strategy.
Profit Sharing + Cash Balance Stack
$150k+ / yr
A coordinated stack can shelter the owner's and key employees' taxable income year after year — not a one-time credit, but a recurring reduction in what you owe the IRS. It is rarely modeled unless someone runs the numbers.
See what it could mean for you.
Stack figures are illustrative and depend entirely on owner age, compensation, employee census, nondiscrimination testing results, actuarial assumptions, and the business's capacity to fund contributions. Cash balance plans carry ongoing funding obligations and additional administrative cost. Amounts shown are shelter capacity, not tax savings — actual savings depend on your marginal rate. Not tax or legal advice.
Common Questions
Franchise 401(k) Tax Credit FAQ
What tax credits are available for starting a franchise 401(k)?
Three SECURE 2.0 credits: a startup costs credit of up to 100% of eligible costs (max $5,000/year for 3 years), an employer contributions credit of up to $1,000 per eligible employee for up to 5 years, and a $500 per year auto-enrollment credit for 3 years. Eligibility and amounts depend on employee count, compensation, and contributions.
How much is the 401(k) startup costs credit?
For employers with 1 to 50 employees, the credit is 100% of eligible startup and administration costs, up to $250 for each eligible non-highly compensated employee (minimum $500, maximum $5,000) per year for the first three years, so up to $15,000 total. Employers with 51 to 100 employees claim 50%.
What is the employer contributions credit worth?
Up to $1,000 per eligible employee (those earning $110,000 or less in 2026), at 100% in years 1 and 2, 75% in year 3, 50% in year 4, and 25% in year 5. It is reduced for employers with more than 50 employees.
Do I have to offer auto-enrollment to claim a credit?
Automatic enrollment is now required for most new plans. When your plan includes an eligible automatic enrollment arrangement, you can claim a flat $500 per year credit for three years.
What is IRS Form 8881?
IRS Form 8881 is the form used to claim the small employer pension plan startup costs, employer contributions, auto-enrollment, and military spouse participation credits. It is filed with your business tax return.
Do you complete Form 8881 for me?
Yes. When we set up your plan, our team completes IRS Form 8881 on your behalf and sends it to you so the credits can be claimed. Filing the form and confirming final eligibility remain between you and your tax preparer.
Can a controlled group claim these credits?
Yes, but all members of a
controlled group are treated as a single employer for the credit, and each member claims its proportionate share. The employee-count thresholds apply across the whole group.
Are SECURE 2.0 credits the same thing as profit sharing or cash balance tax savings?
No — they are two different mechanisms. SECURE 2.0 credits are a fixed, capped offset against your plan's setup and operating cost. A coordinated
Profit Sharing and Cash Balance stack is a much larger, ongoing reduction in the owner's and key employees' taxable income, which for an eligible owner may exceed $150,000 a year depending on age, compensation, and census. The credits offset what you pay for the plan. The stack offsets what you owe the IRS.
See What You Could Claim
Let's estimate your credits.
In 30 minutes we can map your headcount and contributions to the credits you may qualify for — and show how much of your plan cost could come back. See
pricing or the
full franchise solutions.
IRS Form 8881 · Rev. December 2025 — view the full form
