I know you are learning about a lot of new provisions. I am trying to help you, because I know this stuff. I do plan administration and I gather the required info for eligibility and qualification. I help small businesses with making decisions on benefit plans and comparative shopping. I hold informative sessions and provide paycheck inserts for employees, especially this time of year for bonuses, enrollment, and W4 updates. You're not asking about how to use the program. You keep asking what and why, not how.

"I would like to understand simply what line 7 and 8 mean"

I'm not sure if you are stuck here on "credit" or "small employer" or "startup costs" or "partnership and S corporations." You keep reiterating "What's it mean?" but what is the It you are asking about? You need to ask the specific question, please. Otherwise, it means what it states. Find out about the employing entity and their plan(s) and the required info (employee census). If the qualifying criteria is met, and your entity is opting to submit for the credit, you fill in the data which applies. These incentives are written towards specific reporting entities. Form 3800 is the General Business Credit, as I noted previously. Expenses that are instead of this credit will be deducted on the entity's tax form as part of operations. K becomes K-1 data, and like the Form 3800, passed to the individual's tax form(s). You already commented on the codes for that data.

"8 -Add lines 5" <== value is based on the number per employee or the limit

"6g" <== based on the timeline for the plan existing

"and 7" <== Qualifying amount of the costs

"Partnerships and S corporations, report this amount on Schedule K. All others, report this amount on Form 3800, Part III, line 1j"

Yes, this will be passed to the appropriate next step, depending on the entity type.

"What is the first step? and so on.."

Know the entity type that has the possibility to qualify for the credit, be doing that tax return, find out if their plan qualifies, opt to take advantage of that status. Get the details, such as # of employees, etc.

"I was wondering while the setup costs are incurred in the first year and it is done"

Or, the setup is done in a prior year, to be effective in the new upcoming year, and you can elect that prep year to be treated as the first year.

"and employees contribute ongoing basis"

You may be referring to employer's contribution? The match? Or, the employer's nonelective contribution to an employee (which is like a bonus)? Because the employee participation from wages is elective deferrals as you see on 6b and 6c.

"how come this tax credit is spread over three consecutive years?"

It spreads over one or more years, and it is claimable in the prep year or not, because Congress provided for those details. It's part of incentives, to get employers to get involved. If you really want to know the details, you have to trace it back to the original submission for the Bill. You can read here:

https://www.federalregister.gov/documents/2023/11/15/2023-25148/proposed-collection-comment-request-...

and I found this for the Form:

https://www.asppa-net.org/news/irs-updates-form-8881-reflect-effort-expand-coverage

and I found another blog article that might help:

https://www.paycom.com/resources/blog/retirement-plans-startup-costs-tax-credit/

"it means employer can apply this credit for 3 years if employer run this set-up one more time in the next year and third year?"

There is no further "setup" year. That's not what the 3-year means; it does not require another round of "setup" because the plan is already established.

"And should employer have contribution in Auto-enrollment plan?"

It's an optional feature, that the employer can make a specific contribution to someone's retirement under the eligible retirement plan. That's one reason these are called Defined Contribution plans, and not Defined Benefit plans

"I do not know why when I complete this form 1-5, the cost deducted from line 17?"

From the instructions: "No Deduction Allowed for Credit Amount
You must reduce your otherwise allowable deduction for startup costs by the credit amount on line 5."

You don't need to apply for the credit. The entity might not qualify for the credit. The plan might not qualify for the credit. You are using an available option. You never get to double-dip. Employers may not claim the credit and deduct the same expenses that helped them qualify. If you don't want to take the credit, stop using Form 8881. Take costs as an ordinary expense, instead. No additional special credits allowed.

"And If employer did not have any number for plan contribution RED ERROR popes up. Should enter the cost on there?"

Contribution is the amounts to employee accounts. The retirement plans tax credit may be claimed for expenses that are ordinary and necessary to:

• set up a new retirement plan
• administer the plan to employees
• inform workers about their new option

You seem to be trying to put the same values into multiple places. You might not need to try this at all for a specific entity. Perhaps the employer doesn't qualify (perhaps too many employees) or the plan doesn't qualify, or both. From the instructions: "However, you are not an eligible 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."