How to complete form 8881 for automatic participation feature tax credit?

[lac528]

The problem is that while the above solution works for a company with employees, it doesn't work for a sole proprietor with no employees which is eligible for and trying to claim the auto-enrollment credit (Form 8881, Part II), but not eligible for and not trying to claim the startup credit (Form 8881, Part I). These 2 credits have different eligibility criteria and sole proprietors can be eligible for Part II while not being eligible for Part I and TurboTax appears to provide no way to claim the Part II credit in that scenario.

Please see this thread for more on this problem which I hope TurboTax will remedy asap.

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/no-place-to-enter-small-employer...

[LenaH]

As stated in the thread here, this issue will be investigated. 

@lac528 

[hyperkik]

Is there an update on this please?

[CatinaT1]

I'm not aware of any issues for this tax season. Are you preparing a 2023 return or a 2024 return?

[ramen dog]

I'm preparing a 2024 return and cannot find the way to claim this credit in the same situation described above by lac528

[PatriciaV]

The Small Employer Auto-Enrollment Credit portion of Form 8881 will be connected to your self-employed business only if you enter qualified start-up costs. Even if you are the only employee, you may have paid something to establish the retirement account. Report this amount (at least $1) as Pension Plan Startup Costs under Business Expenses >> All Other Expenses.

Continue through the interview until you come to the page "We need a little more information about your employer pension plan..." The final question on this page asks about the auto-enrollment option.

You may encounter other questions on Smart Check to accurately claim the credit.

@ramen dog 

[ramen dog]

@PatriciaV I am on the Mac version of TT2024 H&B.  There is no "All other expenses" under Business Expenses.  Where do I find this interview on the Mac version?

[PatriciaV]

The Mac version should have a similar category under Business Expenses, perhaps "Other Common Business Expenses." The pension plan info would be under "Employee Expenses."

@ramen dog 

[SeanD86]

Where do I see "Business Expenses >> All Other Expenses" on Turbo Tax Online? I also need to claim  auto-enrollment credit as sole proprietors for my solo 401k plan. I can't find where to enter the the information needed. Thanks!

[PatriciaV]

In order to report pension plan information in TurboTax Online Premium, you must first indicate that you pay employees. This triggers the option to enter employee expenses, including pension plan costs.

1. Open your return and go to Wages & Income >> Self-employment.
2. Edit your business.
3. Edit Business info to indication you pay W-2 employees.
4. Under Expenses, click Add Expenses.
5. Add: Employee Pension Plan & Employee pension plan startup costs
6. Edit each topic and complete the related interview.

@SeanD86 

[ramen dog]

Re: 2024 H&B Mac Edition Issue with claiming the auto-enrollment credit (Form 8881, Part II)

Edit: Under Business: Less Common Business Situations ->Business Credits there is an option for "Pension Plans - Startup Costs, Auto-Enrollment and Military Spouse Participation credits" - but it will not let me take the Auto-Enrollment credit even though [as covered ad nauseam above, a sole proprietor with no employees is eligible  to claim the auto-enrollment credit (Form 8881, Part II), without being eligible for or claiming the startup credit (Form 8881, Part I)].  Instead it displays the message  "You have not entered any pension plan startup costs. In order to take this credit you must have entered costs.. go to the Business tab.. and enter your expenses", a circular situation that seems like a bug as described in the 2023 version above in this thread.

[AnnetteB6]

First, be sure that you have indicated that your Schedule C business has employees.  Then, if you are using the Home and Business version of TurboTax, follow these steps:

1. While working in your Schedule C, click Update beside Business Expenses > Other Common Business Expenses.
2. Find Employee Expenses in the list and click Start or Update.
3. Click Start or Update beside Pension Plan Startup Costs.
4. Enter an amount for your startup costs.
5. Answer the questions about the number of employees and providing an auto-enrollment option.
6. Answer the question about whether your plan qualifies for the Pension Startup Credit.
7. Click Continue to exit this section.

Next, navigate away from your Schedule C and go back to the Business tab at the top of the screen.  Then, follow these steps:

1. Scroll to the Less Common Business Situations at the bottom of the screen.
2. Click Start or Update beside Business Credits.
3. Click Start or Update beside Pension Plans - Startup Costs, Auto-Enrollment...
4. Go through any questions to complete Form 8881 which is now part of your return.

If you are using a version other than Home and Business, the steps are similar except there is no Business tab at the top of the screen.  You will navigate to Wages and Income > Business Items > Business Deductions and Credits > Other Business Credits > Pension Plans - Startup Costs... for the input required for Form 8881.

@ramen dog 

[ramen dog]

@AnnetteB6 @PatriciaV 

See Lac528’s response from above, it sounds like this was fixed in the Windows Desktop version but not in the Mac version:

The problem is that while the above solution works for a company with employees, it doesn't work for a sole proprietor with no employees which is eligible for and trying to claim the auto-enrollment credit (Form 8881, Part II), but not eligible for and not trying to claim the startup credit (Form 8881, Part I). These 2 credits have different eligibility criteria and sole proprietors can be eligible for Part II while not being eligible for Part I and TurboTax Mac Desktop 2024 appears to provide no way to claim the Part II credit in that scenario.

[SeanD86]

Thank you, Patricia, as a sole proprietor business, there are no w-2 employees.  According to the thread here https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-no-place-to-e[product key rem...   A sole proprietor with no W-2 employees, where the individual is the only person in the business, can have a Solo 401(k) plan with the auto-enrollment credit and claim that $500 credit each year for 3 years without qualifying for the startup credit. 

Post by lac528:

The eligibility requirements for the auto-enrollment credit (Part II of Form 8881) are different than the eligibility requirements for the startup credit (Part I of Form 8881). This has been expressed before on this forum in these posts months ago:

https://ttlc.intuit.com/community/business-taxes/discussion/re-how-to-c[product key removed]yer-auto...

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-how-to-complete-form-8881-for...

A sole proprietor with no W-2 employees, where the individual is the only person in the business, can have a Solo 401(k) plan with the auto-enrollment credit and claim that $500 credit each year for 3 years without qualifying for the startup credit.

This is further explained in this link which someone included in one of the above posts:

https://www.mysolo401k.net/the-self-directed-solo-401k-auto-enrollment-tax-credit-aka-auto-contribut...

This page explicitly explains how a Solo 401(k) with no W-2 employees can qualify for the auto-enrollment credit but cannot qualify for the startup credit:

https://www.mysolo401k.net/auto-enrollment-tax-credit-vs-the-start-up-credit-and-impact-on-solo-401k...

‎July 26, 2024 4:39 PM

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So I am not sure how to handle this. Thanks for your checking.

[coop00]

I was hoping this would be fixed for 2024. I had to file by mail for my 2023 taxes. Here is what I did and video instructions as well:

https://streamyard.com/watch/S49rY8byCKVF

I filed by mail because I wasn't able to claim the $500 Solo 401k tax credit via TurboTax online as a sole-proprietor.

I downloaded my TurboTax documents. Then, I filled out form 8881 - adding $500 to Part II, line 9 and 11.

Schedule 3 6Z write in FORM 881, PART II, for the $500. Your total will be on Schedule 3, line 8.

Form 1040 line 20 - write in the amount from Schedule 3, line 8.