Microemployer Retirement Credit Jumps to 100% Coverage for Businesses with 10 or Fewer Employees Starting 2025

The Retirement Investment in Small Employers Act is a direct play to get the smallest businesses—the true mom-and-pop shops—to offer retirement plans. Right now, small businesses can get a tax credit for setting up a plan, covering 50% of their administrative costs up to $500. This bill drastically ups the ante for "qualified microemployers" by increasing that credit to cover 100% of the administrative costs and raising the cap on those costs to $2,500. This major boost kicks in for tax years beginning after December 31, 2024.

Who Qualifies as a Microemployer?

This isn't for every small business. The bill defines a "qualified microemployer" as one with 10 or fewer employees. That’s a tight restriction, especially when the existing tax code often uses 100 employees as the threshold for small business retirement incentives. This focus means the legislation is specifically targeting the very smallest operations—think the local bakery, the small construction crew, or the independent digital marketing firm with a handful of staff. There’s one key requirement: to qualify for the enhanced credit, the plan must agree to accept any matching contributions the employer decides to make.

What This Means for the Smallest Shops

For a business owner with, say, eight employees, the initial hurdle of setting up a 401(k) or similar plan is usually the administrative cost and complexity. If those startup costs are $2,500, under the old rules, the owner would still be on the hook for about $2,000 (50% of $500 covered by the credit, leaving $2,250 to pay). Under this new setup, that same owner gets the full $2,500 covered by the credit, effectively making the initial setup cost zero. This removes a significant financial barrier that often keeps microemployers from offering benefits.

The Real-World Impact on Employees

When a business is this small, employees often don't have access to workplace retirement savings plans. If this bill succeeds in incentivizing more microemployers to offer plans, it directly impacts their employees—the mechanics, the office managers, the retail staff—who will now have an easy, payroll-deducted way to save for retirement. For someone juggling rising living costs, having an employer-sponsored plan is often the only realistic path to consistent savings. The bill’s requirement that the plan must accept employer matching contributions also sets the stage for future employee benefits, even if the match isn't mandatory right away.

Where the Money Comes From

While this is a huge win for microemployers and their workers, there's a flip side: tax credits are essentially federal spending delivered through the tax code. By increasing the percentage covered and raising the cap fivefold, the government is dramatically increasing its investment in small business retirement plan adoption. This means the U.S. Treasury will see higher tax expenditures—or, put simply, less tax revenue—as more small businesses take advantage of this much richer incentive. It's a direct cost to the federal government in exchange for expanding retirement access.