No Place to Enter Small Employer Pension Plan Startup Costs

[lac528]

Under Other Business Situations --> Other Business Credits is the sub-section Pension plans - Startup Costs, Auto-Enrollment, and Military Spouse Participation Credits.

Clicking to update this sub-section leads to a screen saying the following:

"Small Employer Pension Plan Startup Costs

You have not entered any pension plan startup costs. In order to take this credit you must have entered the costs for your business, farm, or farm rental.

If you have expenses to enter for pension plan startup costs, go to the Wages & Income section of Federal. Choose the Self-Employment or Farm Income and Farm Rental topic, and enter your expenses. When you return to this section we will calculate the credit for you."

I have entered all my Self-Employment income and expenses. I see nowhere there or anywhere else to enter the Pension Plan Startup Costs. And when I return to the section above, it never calculates any credit for me.

How do I enter this? I am trying to claim the Form 8881 auto-enrollment credit.

This is on TurboTax Online Premium. I don't know why but there is no option in the dropdown for that version.

[LenaH]

Please follow the step-by-step instructions below:

1. Navigate to your Schedule C. 
2. Click Add expenses for this work.
3. Scroll down to Less Common. 
4. Put a checkmark next to Employee pension plan startup costs and click Continue.
5. Click Edit (pencil) next to the expense category and enter the information.
6. Continue through the screens until you get to the screen, We need a little more information about your employee pension plan startup costs.
7. Answer the questions accordingly (see example below).
8. Answer yes to the question, Is your pension plan qualified for the Pension Startup Credit? 
9. Next, go into Other Business Credits ----> Pension Plans - Startup Costs, Auto-Enrollment, and Military Spouse Participation Credits as directed previously. 
10. Your credit should be automatically calculated on the screen Credit for Small Employer Pension Plan.

If you are having an issue getting into your Schedule C and adjusting or adding expenses, I would suggest deleting your Schedule C and starting over. To do so, please click on Tax Tools on the left hand side, then click on Tools. In the Tools Center, click on Delete a form. Scroll down to Schedule C and click Delete. 

@lac528 

[lac528]

Thank you for the reply.

I see now what the problem is. If I set up a new company and say that I have W-2 employees for that company, then the option is there under Less Common Expenses to add Pension Plan Startup Costs for that company. However, on a company that has no employees, such as a sole proprietorship, the Pension Plan Startup Costs option isn't offered.

I know it may seem to make sense that without employees, that Pension Plan Startup Costs option isn't needed.  But sole proprietorships are eligible for the auto-enrollment credit which is also claimed in that same area of Form 8881. So some of us sole proprietors need to be able to fill in Form 8881 with that auto-enrollment credit.

We need TurboTax to provide an option for us to claim the auto-enrollment credit even as sole proprietors. I don't know if, despite having no employees, we as sole proprietors could just check the box saying we have employees as a workaround for the sake of gaining access to that Pension Plan Startup Costs screen without having something else populate incorrectly on the tax forms. But I would be concerned doing that would cause a problem.

One other problem is that as sole proprietors we may need to claim the auto-enrollment part of the credit without claiming any startup costs. Right now if I correctly put $0 for the startup costs, it won't give me a way to claim the auto-enrollment credit. If I put some dollar amount for the startup cost, incorrectly but just as a test, then it lets me claim the auto-enrollment credit, but incorrectly gives credit for the startup credit too.

How can a sole proprietor claim just the auto-enrollment credit without claiming anything for the startup credit?

Please help.

Edit: It seems like if I enter some Pension Plan Startup Cost amount, this gives me access to the auto-enrollment credit. And then I can go back later and replace the startup cost with $0 and the auto-enrollment credit remains. So if you put $0 in first, you can't even claim the auto-enrollment credit. But if you put some amount in, claim the auto-enrollment credit, then change the amount to $0 it works. This may be a workaround.

However the other problem still remains - that the entire Pension Plan Startup Cost option isn't even available if you enter accurately as a sole proprietor that you have no employees.

[LenaH]

Per the IRS, one of the qualifications to be eligible for the credit is you had at least one plan participant who was a non-highly compensated employee. By definition, a highly compensated employee is any individual who owned more than 5% of the interest in the business at any time during the year, regardless of how much compensation that person earned or received. Therefore, it is correct that the option isn't available if you enter accurately as a sole proprietor with no employees. Such a situation would not qualify for the credit. 

In addition, the auto enrollment tax credit is also dependent upon being an eligible employer - again with at least one plan participant who was a non-highly compensated employee. 

@lac528 

[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-claim-small-employer-auto-enro...

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...

[LenaH]

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

@lac528 

[lac528]

@LenaH Thank you for replying in all 3 of the threads dealing with this issue. I think my post just above is the most comprehensive one in linking to all the resources TurboTax should look at in fixing this issue.

The bottom line is that TurboTax incorrectly assumes that only a company with W-2 employees can claim the auto-enrollment credit and that any company claiming the auto-enrollment credit must also have pension plan startup costs. This is not the case. A sole proprietor with no employees and no pension plan startup costs can claim just the auto-enrollment credit on Form 8881, which should flow to Form 3800 and onto the 1040.

So basically TurboTax needs to make it so you can go into Schedule C, claim no employees, still see the Pension Plan options, and choose just the auto-enrollment credit (Part II of Form 8881) while having nothing for the startup credit (Part 1 of Form 8881) and $0 for pension plan startup costs. As of now, it's impossible to enter that combination of facts.

I really hope TurboTax will fix this quickly in both the online and desktop versions. You can see from all the posts in these threads that this omission is causing a major problem for quite a few people. For me, it's holding me up tremendously. I will be extremely thankful when it's remedied. Thank you for your attention to this matter.