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

1

2 2

3

4

5

Form 8881 (Rev. 12-2006)

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

than $1,000 

3 Credit for small employer pension plan startup costs from partnerships and S corporations

5 Enter the smaller of line 4 or $500. Partnerships and S corporations, report this amount on

Schedule K; all others report this amount on the applicable line of Form 3800, (e.g., line 1m of

the 2006 Form 3800) 

Cat. No. 33435N

Enter one-half of line 1 

4

1

Add lines 2 and 3 

(Rev. December 2006)

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 the tax year the credit is available by not

claiming it on your tax return for that year.

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.

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, 2007, may elect to treat 2006 as the first

credit year and claim the credit on its 2006 tax return for

qualified startup costs incurred in 2006.

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

For purposes of figuring the credit, all members of a controlled

group of corporations (as defined in section 52(a)), all members

of a group of businesses under common control (as defined in

section 52(b)), and all members of an affiliated service group (as

defined in section 414(m)), are treated as a single employer. As a

member, compute your credit based on your proportionate share

of qualified startup costs giving rise to the group’s credit for

small employer pension plan startup costs. Enter your share of

the credit on line 2. Attach a statement showing how your share

of the credit was figured, and write “See Attached” next to the

entry space for line 2.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated burden

for individual taxpayers filing this form is approved under OMB

control number 1545-0074 and is included in the estimates

shown in the instructions for their individual income tax return.

The estimated burden for all other taxpayers who file this form is

shown below.

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.

● The tax liability limit is no longer figured on this form. Instead,

it must be figured on Form 3800, General Business Credit.

● Taxpayers that are not partnerships or S corporations, and

whose only source of this credit is from those pass-through

entities, are not required to complete or file this form. Instead,

they can report this credit directly on line 1m of Form 3800.

● The IRS will revise this December 2006 version of the form

only when necessary. Continue to use this version for tax years

beginning after 2005 until a new revision is issued.

What’s New

Recordkeeping 5 hr., 58 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.

Learning about the law or the form 53 min.

Preparing and sending the form to the IRS 1 hr., 1 min.