Form 8881 (Rev. 12-2013)
Page 2
General Instructions
Section references are to the Internal Revenue Code unless
otherwise noted.
Future Developments
For the latest information about developments related to Form
8881 and its instructions, such as legislation enacted after they
were published, go to www.irs.gov/form8881.
Purpose of Form
Eligible small employers use Form 8881 to claim the credit for
qualified startup costs incurred in establishing or administering
an eligible employer plan.
The credit is allowed under section 45E and is part of the
general business credit. You may elect, however, to have
section 45E not apply for the tax year the credit is available by
not claiming it on your tax return for that year.
Taxpayers, other than partnerships and S corporations,
whose only source of this credit is from a partnership or S
corporation, are not required to complete or file this form.
Instead, they can report this credit directly on Form 3800.
How To Figure the Credit
For an eligible small employer, the credit is 50% of the qualified
startup costs paid or incurred during the tax year. The credit is
limited to $500 per year for the first credit year and each of the
following 2 tax years. No credit is allowed for any other tax year.
Eligible small employer. To be an eligible small employer, you
must have had no more than 100 employees during the tax year
preceding the first credit year who received at least $5,000 of
compensation from you during that tax year. However, you are
not an eligible small employer if, during the 3 tax years
preceding the first credit year, you established or maintained a
qualified employer plan with respect to which contributions were
made, or benefits were accrued, for substantially the same
employees as are in the new qualified employer plan. See
section 45E(c) for rules for controlled groups and predecessor
employers.
Qualified startup costs. Qualified startup costs are expenses
paid or incurred in connection with: (a) establishing or
administering an eligible employer plan; or (b) the retirement-
related education of employees about the plan.
Eligible employer plan. An eligible employer plan is a qualified
employer plan (as defined in section 4972(d)) with at least one
employee eligible to participate who is not a highly
compensated employee. All eligible employer plans of the same
employer are treated as one eligible employer plan.
First credit year. The first credit year generally is your tax year
that includes the date that the eligible employer plan becomes
effective. However, you may elect to have the preceding tax
year be the first credit year, and claim the credit for qualified
startup costs paid or incurred during that tax year. For example,
a calendar-year eligible small employer whose eligible plan is
first effective on January 1, 2014, may elect to treat 2013 as the
first credit year and claim the credit on its 2013 tax return for
qualified startup costs incurred in 2013.
No Deduction Allowed for Credit Amount
You must reduce your otherwise allowable deduction for startup
costs by the credit amount on line 2.
Member of Controlled Group or Business
Under Common Control
For purposes of figuring the credit, all members of a controlled
group of corporations (as defined in section 52(a)), all members
of a group of businesses under common control (as defined in
section 52(b)), and all members of an affiliated service group (as
defined in section 414(m)), are treated as a single employer. As
a member, compute your credit based on your proportionate
share of qualified startup costs giving rise to the group’s credit
for small employer pension plan startup costs. Enter your share
of the credit on line 2. Attach a statement showing how your
share of the credit was figured, and write “See Attached” next to
the entry space for line 2.
Paperwork Reduction Act Notice. We ask for the information
on this form to carry out the Internal Revenue laws of the United
States. You are required to give us the information. We need it
to ensure that you are complying with these laws and to allow
us to figure and collect the right amount of tax.
You are not required to provide the information requested on
a form that is subject to the Paperwork Reduction Act unless
the form displays a valid OMB control number. Books or
records relating to a form or its instructions must be retained as
long as their contents may become material in the
administration of any Internal Revenue law. Generally, tax
returns and return information are confidential, as required by
section 6103.
The time needed to complete and file this form will vary
depending on individual circumstances. The estimated burden
for individual taxpayers filing this form is approved under OMB
control number 1545-0074 and is included in the estimates
shown in the instructions for their individual income tax return.
The estimated burden for all other taxpayers who file this form is
shown below.
Recordkeeping . . . . . . . . . . . 5 hr., 58 min.
Learning about the law or the form . . . . . . 53 min.
Preparing and sending the form to the IRS . . 1 hr., 1 min.
If you have comments concerning the accuracy of these time
estimates or suggestions for making this form simpler, we would
be happy to hear from you. See the instructions for the tax
return with which this form is filed.
