Entering Form 8881 credit for small employer pension plan startup costs in Lacerte

This article will assist you with entering amounts for Form 8881, Credit for Small Employer Pension Plan Startup Costs. Follow the steps below for the applicable module.

What's new for Form 8881 for tax year 2023:

• Increase in limit for the small employer pension plan startup costs credit. The Further Consolidated Appropriations Act, 2020, increased the credit limit for the credit for small employer pension plan startup costs.
• New credit for small employer automatic enrollment in retirement savings. The Further Consolidated Appropriations Act, 2020, created a new credit for small employers with an auto-enrollment option for retirement savings.
• Changes to the form. The title of Form 8881 is changed to Credit for Small Employer Pension Plan Startup Costs and Auto-Enrollment. Also, the form now has two parts. Part I to claim the credit for small employer pension plan startup costs. Part II to claim the credit for small employer auto-enrollment in retirement savings.

To enter amounts for Form 8881 in a Corporate return for tax year 2023 and newer:

1. Go to Screen 28, General Business Credits.
2. From the Sections list, select Credit for Small Employer Pension Plan Startup Costs, Auto-Enrollment and Military Spouse Participation (8881).
3. Enter any other applicable fields in this section.

To enter amounts for Form 8881 in a Partnership return for tax year 2023 and newer:

1. Go to Screen 20, Credits.
2. Select Other Credits on the left side.
3. From the Sections list, select Credit for Small Employer Pension Plan Startup Costs, Auto-Enrollment and Military Spouse Participation (8881).
4. Enter any other applicable fields in this section.

Generating Form 8881 Credit for Small Employer Pension Plan Startup Costs for an S Corporation

1. Navigate to Screen 26, Credits
2. Select Schedule K Credits from the left navigation panel.
3. Scroll down to the Small Employer Pension Plan Startup Costs Credit (Form 8881) section.
4. Enter the Qualified startup costs (code 88).
5. Enter the Ratio (.xxxx, 1 if all) or amount of credit allocable to COGS (code 506) (if applicable).

Review the Schedule K-1 for each shareholder to verify the allocation of the credit. The amount from Form 8881 will flow to Box 13 with a Code P. A supplemental statement is also generated with the Schedule K-1 1120S.

Note: If the credit is from a passthrough entity, enter the amount in Screen 24, Passthrough K-1s in the Credits section under Small employer pension startup cost credit (P) (code 188). Do not duplicate the entries on Screen 26.2, Schedule K Credits.

To enter amounts for Form 8881 in an Individual return for tax year 2023 and newer:

1. Go to Screen 34, General Bus. & Passive Act. Credits.
2. From the Sections list, select Credit for Small Employer Pension Plan Startup Costs, Auto-Enrollment and Military Spouse Participation (8881).
3. Enter any other applicable fields in this section.