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

[SeanD86]

 I tried the option to have w-2 employee and see the pension expense showed up, but when I continued after I answered yes to the plan qualify for the credit, the online site hit a "snag":  

Is your AI Training pension plan qualified for the Pension Startup Credit?

Eligible employers who start a new qualified retirement plan may be able to claim qualified pension plan startup costs as a tax credit. We'll calculate your credit and make any necessary adjustments to your business expenses.

To be an eligible employer, you must:

• Have had no more than 100 employees who received at least $5,000 in compensation from you during the year before the first year you claimed the credit
• Not have had another qualified retirement plan that covered substantially the same employees within the three-year period prior to starting the new plan.

A qualified plan includes:

• Qualified defined benefit plans
• Qualified contribution plans, including 401(k) plans
• SIMPLE plans
• SEP plans

The plan must have at least:

• One covered employee who earns $100,000 or less from the business.

Is your pension plan qualified for the Pension Startup Credit?

Yes

No

Hmm, looks like we hit a slight snag in this section

Let's get you back to your taxes. Make sure your Internet is connected, and then select Try again or check back in a few minutes.

[ramen dog]

@coop00 

Thanks for your reply.  I've managed to find what I think is a workaround by following the instructions in the last few posts of this thread: here

To wit, use "Open Forms" to add form 8881 to your return.  Put zero in Part I line 7.  Check 'Yes' in Part II under "Credit for Auto Enrollment Smart Worksheet". $500 Credit appears in lines 9 & 11 as well as on Form 3800 Pt 3 lines dd, 2 & 6.  

The only difference I see from your manual solution is that on Schedule 3, the $500 appears on Part I 6a instead of 6z.

I have no idea if this will work or not.  Hopefully someone from TurboTax will eventually understand what the problem is and offer a real solution but I will probably call support before that happens.

[ramen dog]

@SeanD86 You might want to consider switching to the Desktop version, there are instructions for how to do this linked in this post, https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-how-to-complete-form-8881-for...

[SeanD86]

Thanks for pointing out the option. I  already paid for the online version, do I need to pay for the desktop version again? Thanks.

[ramen dog]

Can someone from Inuit please follow up on this issue?  Is there a bug here? Is the problem of a sole proprietor with no employees who 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) being acknowledged and investigated?

[PatriciaV]

Yes, the auto-enrollment credit on Form 8881 has been investigated by the development team. There is no plan to make changes to how this form is prepared in TurboTax Business.

According to IRC Section 45E, an eligible employer must have at least one plan participant who was a non-highly compensated employee (NHCE); (NHCE includes a salary amount which adjusts each year due to inflation for example was $150,000 in tax year 2023 or anyone who owed 5% of more of the business).

@ramen dog 

[ramen dog]

that is the requirement for taking the startup cost credit in part I. I want to take only the Small Employer Auto-Enrollment Credit in part II. The IRS instructions for part II are clear that an eligible employer is different than for Part I. I do meet the criteria for part II. Turbotax H&B mac will not allow me to complete form 8881 Part II only. Additionally, it was already determined last year that these facts are not in dispute. See, for example, the following thread that references this issue and the replies by Intuit personnel @LenaH and @JotikaT2 among others:

https://ttlc.intuit.com/community/business-taxes/discussion/how-to-claim-small-employer-auto-enrollm...

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...

@GeorgeB7 If you could help clarify this again, please

[PatriciaV]

If you wish to claim the tax credit without reporting startup costs, you have the option to manually complete Form 8881 in TurboTax for Desktop. It's possible the program will have form errors that would prevent you from e-filing. In that case, you would need to file by mail.

See this article for help: How do I switch from TurboTax Online to the TurboTax software?

@ramen dog 

[lac528]

@PatriciaV 

Is there really still a problem with e-filing on TurboTax Desktop if we fill out Form 8881 for the Auto-Enrollment Credit as a sole proprietor in Forms mode? I thought a solution was already found for that particular problem last year. Please see my post linked below where I explain this workaround I thought was found.

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

I would have really hoped after this much time and so many reports, TurboTax would have fixed this problem fully. But I at least thought we can use Forms mode and rely on that to get e-filed. Can you clarify why you are still saying the program may prevent us from e-filing even now?

(Also if any sole proprietor has claimed the Auto-Enrollment Credit on TurboTax Desktop using Forms mode and successfully managed to e-file, please post here and confirm that for others.)

[PatriciaV]

As long as your return passes the final review without any form errors, you may be able to e-file your return. In our test returns, however, the amount for start-up costs had to be at least $1.

As stated previously, there is no plan to revise how TurboTax handles Form 8881 for the auto-enrollment credit.

@lac528 

[rn13]

Following this thread and have tried the workaround via Open Forms, and hopefully this will be fine to file by mail?

But I'm really confused about the official response of their being no plans to revise how TurboTax handles Form 8881.

The fact is that TurboTax handles this form incorrectly, and it's pretty depressing that a company whose only job is to handle tax forms correctly has no interest in correcting their mistakes, and when the team deep-dives into the issue multiple times, they keep coming back up with the incorrect information, showing that they are not competent at understanding tax law.

Should we be trusting TurboTax for anything going forward if they won't fix this?

[ramen dog]

Yes, it’s obvious that they aren’t interested in correcting their mistake. I don’t have any interest in paper filing, I will be looking at alternatives and I certainly would not have purchased the software if I had been aware of the persistent problem. 

[lac528]

@PatriciaV 

I want to make sure we're talking about the same things.

I understand that in order to get to where you can fill in the Auto-Enrollment Credit in Step by Step mode you need at least $1 in Startup costs. However, here you appear to be saying that even if we go into Forms mode and just claim the Auto-Enrollment Credit (Part II of Form 8881) there on the forms, it won't let us e-file unless we also have Startup costs either? Am I understanding that correctly? So the people who posted last year saying that once they added a 0 to Line 7 on Form 8881 in Forms mode they were able to file, those people must have also had Startup costs included?

Like @rn13  and @ramen dog I am completely dismayed by TurboTax's attitude toward this problem. This isn't just a feature that isn't working. TurboTax has actual incorrect information about the eligibility for the Auto-Enrollment credit that confuses it with the Startup Credit and is behaving based on that wrong information and sharing that wrong information with users. People one after another are reporting this for an entire year. Every sole proprietor who wants to take this credit for years to come will be unable to do so since we don't have employees or usually startup costs for this.

As for this year, I'm being told that all I can do is go through the work of entering and perfecting my entire tax return, fill out Form 8881 in Forms mode, only to press a button at the end and pray that it goes through. If it doesn't, I have to mail the form in which I find worrisome to do.

It seems like this issue is being blown off for some reason and I simply can't understand why. TurboTax is handling an entire credit for an entire category of people completely wrong and they barely seem to care.

[lac528]

@ramen dog Please post here and share what you find if you look for alternatives. I would hate to have to try different software just because of this one credit TurboTax refuses to address. And I'm skeptical if you'll find another software that can do everything else I need to do and also works properly for this Auto-Enrollment Credit. But please stay in contact with us here so we can all learn and decide what to do together. Hopefully we can help each other get done what we need to get done including claiming this credit one way or another. Thank you.

[ramen dog]

@lac528 

Thanks, I will certainly do my best. I appreciate all the legwork you did last year to diagnose the issue.

Were you able to successfully claim the credit last year? Is this year two for you? I am getting pretty close to having my return completed, so I’m really interested to see if it will pass the final review test and be accepted. if I can’t get this to work then I will be checking out Free Tax USA.