form 8881
Answers
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Do you owe taxes in order for the auto-enrollment credit to offset that? I think this is a non-refundable credit. So it can only bring your taxes owed to $0 and not give you money back beyond that. (Although I believe you may be able to carry the credit forward to future years if you don't owe enough taxes this year to use it against.)
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Hi jbpumpson,
The small employer auto-enrollment credit is a nonrefundable tax credit. This means it can reduce the amount of income tax to zero, but it will not result in a refund if the credit amount is more than the tax liability.
So, your tax due may already be down to $0. If you need help figuring that out, I suggest you contact Customer Support directly to look at your return.1 -
Ah-you're right. Thanks!
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General business credits are non-refundable credits, meaning they can't decrease your total tax to less than $0, or increase a refund. All facts and circumstances on your tax return work together. Without knowing all the details of your return, please also bare in mind the 2025 software program is not yet fully released. Please contact Support for more specific help on your tax return.
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This is all correct. But am I also correct that if you can't fully use the auto-enrollment credit in one year, you can carry forward the unused portion and use it in a future year? If so, it would be good to know this to tell people and maybe for the software itself to tell people who end up in that situation. Also that means the software should have a way for people who do carry forward that credit to apply it in a future year. Does this make sense?
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Hi lp27,
I recommend that you contact the FreeTaxUSA customer support. Someone will be able to look at the return you are entering.
When the Auto-enrollment credit for $500 cannot all be used then it may be carried forward as a general business credit on Form 3800, Line 34. However, at this time the general business credit carryforward on form 3800 is not currently supported in the software. We are looking into it and working on it.
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This situation doesn't apply to me. I will have enough to claim the auto-enrollment credit against on my 2025 taxes. I was just pointing out that the carryforward exists for the person earlier in the thread who appeared to be in position to need it. And I wanted to make sure FreeTaxUSA knows about it so they may want to work on making it possible to use the carryforward for people like that other poster who need it.
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Hi lp27,
Thank you. We are aware of the carryforward.
Thank you for your contributions on the topic.
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I got to test out this implementation of claiming the auto-enrollment credit as a sole proprietor. Thank you so much for implementing this!
After testing, I have 2 issues to raise.
First, just a slight quibble with the wording on one of the relevant screens.
If we choose "Yes" for "Are you an eligible employer with a qualified pension plan?" and check the box to take the Small Employer Auto-Enrollment Credit, it then takes us to the next page.
That page is titled "Tell us about your pension plan (Business Type)"
It says "Small Employer Auto-Enrollment Credit: Did you provide an auto-enrollment option for retirement savings within the past three tax years?" and that's what we check "Yes" to. This makes it sound like we are an employer and we put an auto-enrollment option in our retirement plan for our employees. In reality, as sole proprietors, we have signed up for a retirement plan through some other provider and they have provided us with the auto-enrollment option. We are the recipients of that option, not the providers of it.
I don't know if this seems important enough for you to change just so it sounds more accurate. For example, it could say "Did your plan provide you an auto-enrollment option for retirement savings within the past three tax years?" It doesn't seem like the slightly inaccurate wording correlates with anything inaccurate in how it gets applied on the tax form. So this part of things may just be cosmetic.
My second issue to raise:
I have a single-member LLC with its own EIN. I have a Solo 401(k) for that company through another provider. That provider creates a trust for the Solo 401(k) and that trust has its own EIN. The Solo 401(k) is technically not under the EIN of my company. (Although I believe in the future if I file Form 5500 for the plan, that would use the EIN of my company. It's a bit confusing.)
Anyway, after claiming the auto-enrollment credit, when I look at Form 3800, it correctly puts the $500 credit on Part III, Line dd. But in that row, under the column "(c) Pass-through or transferor credit entity EIN", it puts the EIN of my LLC. I'm not sure if this EIN should be there or not. It's the EIN of my company but not the EIN of the trust created for the Solo 401(k) itself. When I filed previously with TurboTax, it didn't put anything in that column. It was just left blank.
I'm not sure if it would be best if FreeTaxUSA also kept that column blank. If it's correct to put an EIN in that column, then I'm not sure in cases like mine which EIN it should be. I suspect most sole proprietors who are claiming this auto-enrollment credit have a plan through a (or even the same) third party as I do, since standard prototype plans available to sole proprietors usually don't offer that option, and may also have both an EIN for their company and a separate EIN associated with the Solo 401(k). I wonder what FreeTaxUSA thinks is most accurate to do in this situation - leave that EIN column blank, use the EIN of the company, or use the EIN of the trust created for the Solo 401(k) plan.
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Hello Ip27,
Thank you for sharing your experience and input. I will pass this information along to our team.
As for the EIN, that is the EIN listed on the Schedule C associated with your business. I will also pass this information along.0 -
Thank you. Yes I did realize that it was taking the EIN from the Schedule C associated with that business. I'm just questioning if that is a good policy given that many of these plans are not technically set up under that EIN but under a separate EIN created for a trust the Solo 401(k) plan is actually set up under. It's kind of a confusing situation. So I'm not exactly sure which EIN the IRS would want on Form 3800 in this case. Or if it would be better to just not put any EIN. Hopefully you guys can research that and see. If you need any more information about what I mean about this setup with the different EINs for the company vs. the Solo 401(k) trust, just let me know and I can provide that.
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You are only responsible to use the EIN you gave when setting up your i401(k).
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But there are 2 EIN's involved in the i401(k) in cases like this. We may have an EIN for the LLC itself. But then the third-party sets up a trust which has its own EIN and that is the EIN used when the i401(k) accounts are set up. So I'm not sure which EIN should be used as both are involved in different ways in the setting up of the i401(k).
I asked ChatGPT this and it suggested it's best in this case to not use any EIN on Form 3800, Part III, Line dd, column (c) (which is what TurboTax did last year on the Form 3800 I had) but that if you do use an EIN it should be the one for the LLC and not for the trust.
What do you think?
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Hello Ip27. The IRS Instructions for Form 3800 state the following:
"If you are reporting a credit from a pass-through entity (such as a partnership, S corporation, estate, or trust), enter the EIN of the entity that passed the credit to you. If the credit is not from a pass-through entity, leave column (c) blank."
Column c only for identifying the source entity when the credit is passed through to you. For example, if you are a partner in a partnership and the partnership earned the credit.
If the credit is generated directly by your own business (your LLC in this case) and not passed through from another entity, you do not enter an EIN in column C. The IRS specifically says to leave it blank.
If the credit is passed through, you use the EIN of the entity that passed it to you.
If your LLC received the credit from another entity, you’d use that other entity’s EIN.
The EIN of your i401(k) trust would only be relevant if the trust itself earned and passed through a credit — which is extremely uncommon for retirement plan trusts.
Based on the information provided, it sounds like the credit is from your LLC’s own activities, which would lead me to suggest that you leave column C blank.0 -
Personally I'm still not sure what should be in column C or if it should be blank. But you conclude that it should be blank. TurboTax left it blank when I claimed this credit there previously. ChatGPT also said it should probably be blank.
You finished by saying "which would lead me to suggest that you leave column C blank." But I don't think I have an option to leave it blank. Your software is pulling the EIN in automatically from the Schedule C associated with the plan and putting it in column C.
My point in posting was to say that perhaps with this auto-enrollment credit, at least for sole proprietors, it shouldn't do that because I think most sole proprietors have this kind of third-party plan set up in this way. Perhaps FreeTaxUSA should change this so that when a sole proprietor claims the auto-enrollment credit, it doesn't take that EIN from the Schedule C and instead leaves column C blank? The change would seem to have to be made on your end if that is the correct way to handle this.
I might also mention that some of us have more than one Schedule C and we can contribute to our plans based on income earned through more than one since they are treated as a controlled group. So in that sense the plan, though set up associated with one business, actually relates to more than one business. So that might be another argument for not putting any specific EIN in column C.
But I'll leave it to people more expert than me to decide this.0
