Lawmakers Introduce Bill to Boost Start-up Credit for Micro-Businesses

To encourage so-called micro-businesses with less than 10 employees to adopt retirement plans, a bipartisan pair of House lawmakers introduced legislation that would increase and alter the way the start-up credit is calculated.

Reps. Claudia Tenney (R-NY) and Dan Kildee (D-MI)—who are both members of the tax-writing House Ways and Means Committee—on Oct. 19 introduced the Retirement Investment in Small Employers Act (RISE Act / H.R. 6007) to expand the tax credit certain small employers are permitted to use to cover start-up and administrative costs of setting up a defined contribution plan.

Specifically, H.R. 6007 would raise the credit that small businesses with fewer than 10 employees can receive from a minimum threshold of $500 to $2,500 to help them cover these costs.

In introducing the legislation, the lawmakers contend that these smallest of businesses are left at a disadvantage from taking full advantage of the impact of the start-up credit.  

The original SECURE Act and SECURE 2.0 modified and enhanced the retirement plan startup tax credits that small businesses can take as an incentive to adopt new plans. Under the SECURE Act, employers with up to 100 employees could take a 50% credit for plan startup costs with a minimum amount of $500 up to lesser of $5,000 or $250 per eligible non-highly compensated employee for up to three years. SECURE 2.0 allows for 100% of retirement plan administrative and startup costs to be covered for new plans for up to 50 employees, up to $5,000 per year (these changes were phased out for employers with between 51 and 100 employees). 

The lawmakers note, however, that the law did not amend the formula relied upon to determine the amount an employer may claim in retirement plan startup tax credits, leaving the smallest micro-businesses and their employees unable to take full advantage of the credit. The RISE Act would rectify this issue, ensuring that micro-businesses benefit in the same manner as larger businesses, they note.

“Congress must empower and reaffirm our commitment to small businesses across the country by taking steps to grant them a competitive edge in our economy,” stated Rep. Tenney. "I introduced the Retirement Investment in Small Employers Act along with Congressman Kildee today to enable micro-businesses across NY-24 and the nation to offer their employees robust retirement plans and allow their employees to save for the future.”

“In mid-Michigan, small businesses support thousands of good-paying jobs and fuel our local economy,” added Rep. Kildee. “I am proud to work introduce legislation with Congresswoman Tenney to help more employers set up retirement plans, ensuring more Michigan workers can save for retirement. This bipartisan bill is a win for small business owners and workers alike.”