OMB No. 1545-1810 Credit for Small Employer Pension Plan

Startup Costs Form 8881

 Attach to your tax return.

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 130

Name(s) shown on return Identifying number

Current Year Credit (Members of controlled groups or businesses under common control, see

instructions.)

1

2 2

3

4

5

Allowable Credit (See Who must file Form 3800 to find out if you complete Part II or file Form 3800.)

Form 8881 (2002)

Part I

Part II

Qualified startup costs incurred during the tax year. Do not enter more

than $1,000

3 Form 8881 credits from

pass-through entities:

5 Current year credit. Enter the smaller of line 4 or $500

Cat. No. 33435N

Enter one-half of line 1

a

b

Shareholder

Partner

If you are a—

4

Then enter the Form 8881 credits from—

Schedule K-1 (Form 1065) lines 12c, 12d, or 13

Schedule K-1 (Form 1120S) lines 12d, 12e, or 13 

● Individuals. Enter the amount from Form 1040, line 42

6

Corporations. Enter the amount from Form 1120, Schedule J, line 3; Form 1120-A,

Part I, line 1; or the applicable line of your return

●

●

9a 9a

Credit for child and dependent care expenses (Form 2441, line 11) 9b

Credit for the elderly or the disabled (Schedule R (Form 1040), line 24)

b

9d

Foreign tax credit

d

e 9e

Possessions tax credit (Form 5735, line 17 or 27)

9f f

9g g

Credit for fuel from a nonconventional source

h

Qualified electric vehicle credit (Form 8834, line 20)

Add lines 9a through 9l 9m

10

10 Net income tax. Subtract line 9m from line 8. If zero, skip lines 11 through 14 and enter -0- on

line 15

7 Alternative minimum tax:

● Individuals. Enter the amount from Form 6251, line 35

● Corporations. Enter the amount from Form 4626, line 15 7

● Estates and trusts. Enter the amount from Form 1041, Schedule I, line 56

13 Tentative minimum tax (see instructions):

● Individuals. Enter the amount from Form 6251, line 33

11

● Corporations. Enter the amount from Form 4626, line 13

● Estates and trusts. Enter the amount from Form 1041,

Schedule I, line 54

11

Enter 25% (.25) of the excess, if any, of line 11 over $25,000 (see instructions)

14

Subtract line 14 from line 10. If zero or less, enter -0-

14

15

Credit allowed for the current year. Enter the smaller of line 5 or line 15 here and on Form 1040,

line 53; Form 1120, Schedule J, line 6d; Form 1120-A, Part I, line 2a; Form 1041, Schedule G, line

2c; or the applicable line of your return. If line 15 is smaller than line 5, see instructions 16



Mortgage interest credit (Form 8396, line 11)

c 9c

6 Regular tax before credits:

8 Add lines 6 and 7 8

12

Enter the greater of line 12 or line 13

12

13

i

Adoption credit (Form 8839, line 18) 9h

District of Columbia first-time homebuyer credit (Form 8859, line 11) 9i

j

k

l

Child tax credit (Form 1040, line 50)

Education credits (Form 8863, line 18)

9j

9k

Estates and trusts. Enter the sum of the amounts from Form 1041, Schedule G, lines 1a

and 1b, or the amount from the applicable line of your return

Net regular tax. Subtract line 9m from line 6. If zero or less, enter -0-

16

15



9l

m

Credit for qualified retirement savings contributions (Form 8880, line 14)

2002

1

Add lines 2 and 3

For Paperwork Reduction Act Notice, see page 2.
Form 8881 (2002) Page 2

Specific Instructions The credit is allowed under section 45E and is part of the

general business credit. You may elect, however, to have section

45E not apply for your tax year beginning in 2002 by not filing

Form 8881.

Purpose of Form

Eligible small employers use Form 8881 to claim the credit for

qualified startup costs incurred in establishing or administering

an eligible employer plan. The credit is allowed only for costs

paid or incurred in tax years beginning after 2001 with respect to

qualified employer plans first effective after 2001.

S Corporations and Partnerships

A partnership or S corporation that is an eligible small employer

completes Part I of the form to figure the credit to pass through

to its partners and shareholders. Show on Schedule K-1 each

shareholder’s or partner’s allocable portion of the line 5 credit.

Electing large partnerships must include this credit in “general

credits.”

How To Figure the Credit

For an eligible small employer, the credit is 50% of the qualified

startup costs paid or incurred during the tax year. The credit is

limited to $500 per year for the first credit year and each of the

following 2 tax years. No credit is allowed for any other tax year.

Eligible small employer. To be an eligible small employer, you

must have had no more than 100 employees during the tax year

preceding the first credit year who received at least $5,000 of

compensation from you during that tax year. However, you are

not an eligible small employer if, during the 3 tax years

preceding the first credit year, you established or maintained a

qualified employer plan with respect to which contributions were

made, or benefits were accrued, for substantially the same

employees as are in the new qualified employer plan. See

section 45E(c) for rules for controlled groups and predecessor

employers.

Qualified startup costs. Qualified startup costs are expenses

paid or incurred in connection with (a) establishing or

administering an eligible employer plan or (b) the

retirement-related education of employees about the plan.

Eligible employer plan. An eligible employer plan is a qualified

employer plan (as defined in section 4972(d)) with at least one

employee eligible to participate who is not a highly compensated

employee. All eligible employer plans of the same employer are

treated as one eligible employer plan.

First credit year. The first credit year generally is your tax year

that includes the date that the eligible employer plan becomes

effective. However, you may elect to have the preceding tax year

be the first credit year, and claim the credit for qualified startup

costs paid or incurred during that tax year. For example, a

calendar-year eligible small employer whose eligible plan is first

effective on January 1, 2003, may elect to treat 2002 as the first

credit year and claim the credit on its 2002 tax return for

qualified startup costs incurred in 2002.

No Deduction Allowed for Credit Amount

You must reduce your otherwise allowable deduction for startup

costs by the credit amount on line 2.

Controlled Groups

All persons treated as a single employer under section 52(a),

52(b), 414(m), or 414(o) are treated as one person for purposes

of the credit. If the group qualifies as an eligible small employer,

the group member with the greatest startup costs figures the

group credit on lines 1 and 2 and skips the rest of the form. On

separate Forms 8881, each member skips line 1 and enters its

share of the group credit on line 2. Each member then

Additional Information

For more details, see section 45E.

Part I—Current Year Credit

If you paid or incurred qualifed startup costs, complete lines 1

and 2. Complete line 3 for credits that were allocated to you

from an S corporation or a partnership.

Part II—Allowable Credit

The credit allowed for the current year may be limited based on

your tax liability. Use Part II to figure the allowable credit unless

you must file Form 3800, General Business Credit.

Who must file Form 3800. You must file Form 3800 if you have:

● A credit for small employer pension plan startup costs from a

passive activity,

● More than one of the credits included in the general business

credit (other than a credit from Form 8844 or 8884), or

● A carryback or carryforward of any of those credits.

See the instructions for Form 3800 to find out which credits

are included in the general business credit. If you must file Form

3800, enter the credit from line 5 on Form 3800, line 1n, and

skip Part II of Form 8881.

Line 12

See section 38(c)(4) for special rules that apply to married

couples filing separate returns and controlled corporate groups.

Line 13

Although you may not owe alternative minimum tax (AMT), you

generally must still compute the tentative minimum tax (TMT) to

figure your allowable credit. For a small corporation exempt from

the AMT under section 55(e), enter zero. Otherwise, complete

and attach the applicable AMT form or schedule and enter the

TMT on line 13.

Line 16

If you cannot use all of the credit because of the tax liability limit

(line 15 is smaller than line 5), carry the unused credit forward up

to 20 years. See the instructions for Form 3800 for details.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated average

time is: Recordkeeping, 7 hr., 39 min.; Learning about the law

or the form, 53 min.; Preparing and sending the form to the

IRS, 1 hr., 3 min. If you have comments concerning the

accuracy of these time estimates or suggestions for making this

form simpler, we would be happy to hear from you. See the

instructions for the tax return with which this form is filed.

Paperwork Reduction Act Notice. We ask for the information

on this form to carry out the Internal Revenue laws of the United

States. You are required to give us the information. We need it

to ensure that you are complying with these laws and to allow

us to figure and collect the right amount of tax.

You are not required to provide the information requested on a

form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records

relating to a form or its instructions must be retained as long as

their contents may become material in the administration of any

Internal Revenue law. Generally, tax returns and return

information are confidential, as required by section 6103.

General Instructions

Section references are to the Internal Revenue Code.

Note: The credit is not allowed for costs paid or incurred in tax

years beginning before 2002.

Note: Any unused credit may not be carried back to a tax year

beginning before 2002.

completes the remaining applicable lines on its separate Form

8881 (and Form 3800, if required). Each member must also

attach a statement showing how the group credit was divided

among all members. The members share the credit in the same

proportion as they contributed qualified startup costs.