Small Nonprofit Retirement Security Act of 2025
The Small Nonprofit Retirement Security Act of 2025 would expand two existing federal retirement savings credits so they are also available to small tax-exempt nonprofit employers (501(c) organizations). Specifically, it makes the small employer pension plan startup costs credit (section 45E) and the retirement auto-enrollment credit (section 45T) available to “tax-exempt eligible employers.” Instead of being claimed as an ordinary income tax credit, these credits would be treated as payroll tax credits against the employer’s payroll tax (the Social Security portion under section 3111), and the amount eligible for the credit is limited to the lesser of the standard credit amount or the employer’s payroll tax paid in the applicable calendar year. The law also adds a new payroll tax credit provision (section 3111(g)) to reflect this treatment and caps the total credit so it cannot exceed the employer’s total payroll tax due. The amendments apply to taxable years beginning after December 31, 2024, and the bill includes funding transfers to the Social Security Trust Funds to offset the revenue impact. In short, the bill lowers the cost barrier for nonprofits to start retirement plans and implement auto-enrollment by converting existing tax credits into payroll-tax credits for eligible nonprofit employers.
Key Points
- 1Extends the two existing credits to tax-exempt eligible employers (501(c) organizations): the small employer pension plan startup costs credit and the retirement auto-enrollment credit.
- 2Credits become payroll tax credits (against the employer’s payroll tax under section 3111) rather than traditional income tax credits, with the credit amount capped by the lesser of the original credit or the employer’s payroll tax paid in the applicable year.
- 3Defines “tax-exempt eligible employer” as a 501(c) organization exempt under 501(a), and provides a method to determine payroll tax paid (with a special rule akin to section 24(d)(2)(C)).
- 4The “applicable year” for determining the credit is the calendar year referred to in the respective credit’s new subsection (g) or (d).
- 5Effective date and funding: applies to taxable years beginning after December 31, 2024; includes appropriations transfers from the general fund to the Social Security Old-Age and Survivors Trust Fund and the Disability Insurance Trust Fund to offset revenue reductions, aiming to mirror the transfers that would have occurred absent the amendments.