Modification of credit for small employer pension plan startup costs

(a) Increase in credit percentage for smaller employers Section 45E(e) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: (4) Increased credit for certain small employers In the case of an employer which would be an eligible employer under subsection (c) if section 408(p)(2)(C)(i) was applied by substituting 50 employees for 100 employees, subsection (a) shall be applied by substituting 100 percent for 50 percent.. (b) Additional credit for employer contributions by certain small employers Section 45E of such Code, as amended by subsection (a), is amended by adding at the end the following new subsection: (f) Additional credit for employer contributions by certain eligible employers (1) In general In the case of an eligible employer, the credit allowed for the taxable year under subsection (a) (determined without regard to this subsection) shall be increased by an amount equal to the applicable percentage of employer contributions (other than any elective deferrals (as defined in section 402(g)(3)) by the employer to an eligible employer plan (other than a defined benefit plan (as defined in section 414(j))). (2) Limitations (A) Dollar limitation The amount determined under paragraph (1) (before the application of subparagraph (B)) with respect to any employee of the employer shall not exceed $1,000. (B) Credit phase-in In the case of any eligible employer which had for the preceding taxable year more than 50 employees, the amount determined under paragraph (1) (without regard to this subparagraph) shall be reduced by an amount equal to the product of— (i) the amount otherwise so determined under paragraph (1), multiplied by (ii) a percentage equal to 2 percentage points for each employee of the employer for the preceding taxable year in excess of 50 employees. (3) Applicable percentage For purposes of this section, the applicable percentage for the taxable year during which the eligible employer plan is established with respect to the eligible employer shall be 100 percent, and for taxable years thereafter shall be determined under the following table: In the case of the following taxable year beginning after the taxable year during which plan is established with respect to the eligible employer: The applicable percentage shall be: 1st 100% 2nd 75% 3rd 50% 4th 25% Any taxable year thereafter 0% (4) Determination of eligible employer; number of employees For purposes of this subsection, whether an employer is an eligible employer and the number of employees of an employer shall be determined under the rules of subsection (c), except that paragraph (2) thereof shall only apply to the taxable year during which the eligible employer plan to which this section applies is established with respect to the eligible employer.. (c) Disallowance of deduction Section 45E(e)(2) of such Code is amended to read as follows: (2) Disallowance of deduction No deduction shall be allowed— (A) for that portion of the qualified startup costs paid or incurred for the taxable year which is equal to so much of the portion of the credit determined under subsection (a) as is properly allocable to such costs, and (B) for that portion of the employer contributions by the employer for the taxable year which is equal to so much of the credit increase determined under subsection (f) as is properly allocable to such contributions.. (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2024.