Retirement Plans: Tax Benefits for Your Employees
Employees eligible to participate can put away money for retirement on a tax-advantaged basis, either tax-deferred (by putting pre-tax dollars into a standard retirement plan) or tax-free (by putting after-tax dollars into a Roth retirement account). So individuals can decide to save more now (with a standard account where they get the tax deduction in the current year) or later with a Roth style account (where available). Both are extremely powerful savings tools.
Retirement Plans: Tax Benefits for Your Business
First, if you are an active employee of your business, you share those same benefits with your team, and can put away money for your retirement on a tax-advantaged basis.
Second, your business receives tax advantages, too. These are available whether you have a corporation, an LLC, or even a sole proprietorship.
Costs and contributions are deductible. The costs of the plan are normally fully deductible as employee benefits. That includes any matching contributions you make to employee accounts, as well as costs of administration.
Lower payroll taxes. The plan can also usually lower your payroll taxes. Once you establish a 401(k) or other retirement plan, employees will start contributing part of their wages, and you may match some contributions, too. Instead of paying those dollars as wages, those contributions are usually nontaxable, so this will reduce taxable wages. In addition, unemployment insurance premiums might be lower, too, as a result.
Tax credits may be available. Your business may be eligible for tax credits if you have less than 100 employees. Starting in 2020 and beyond, your company may qualify for a credit starting at $500. Larger credits may be available as well, with a $250 credit for each non-highly-compensated individual on your payroll up to a maximum of $5,000.