Is someone in your family currently serving in a branch of the United States Armed Forces? If not, you undoubtedly know someone who is currently serving our country.
An inevitable part of military life is moving often. It is well known that military families will relocate every few years, sometimes all the way across the US, or even overseas. For the military member, relocation is an opportunity for career advancement and broadening of experiences, but it is not always easy, especially for their families. A move means adjustments to new communities, new schools, new friends, and new jobs.
If a military spouse can find a job, it often means starting all over again from entry positions or working part-time. In either situation employee benefits may be few. Military spouses who can find employment often do not remain employed long enough to become eligible for their employer’s retirement plan or to vest in employer contributions, for example. A provision in the SECURE 2.0 ACT of 2022 addresses that issue with an incentive for business owners to help military spouses save for retirement.
Business Tax Credit for Military Spouses – Effective 2023
To qualify for the tax credit, a business must allow a military spouse to become eligible for their company retirement plan within two months of their hire date. The military spouse will then be eligible for any company match or “non-elective deferral” that he or she would have formerly been eligible for only after two years of service. The military spouse must also be immediately 100% vested in any employer contributions. An employer may rely on their employee’s certification that the employee’s spouse is a member of the uniformed services.
The allowed tax credit for the employer equals the sum of $200 per military spouse, plus 100% of the employer contribution up to $300 per military spouse, for a total maximum of $500 per military spouse each year. The employer is eligible to take the credit three years for each military spouse. The military spouse must earn more than $5,000 but not be highly compensated. The tax credit is limited, however, to businesses with less than 100 employees.
Improved Coverage for Part-Time Workers – Effective 2025
A separate and unrelated provision of the SECURE 2.0 Act of 2022 improves retirement coverage for part-time employees of companies that offer 401(k) plans and ERISA covered 403(b) plans (except for those covered by collective bargaining plans). Prior to this change, long-term part-time employees, those working more than 500 hours but no more than 1000 hours for three consecutive years, became eligible to participate in their company’s retirement plan. The Act lowers the number of years required to two consecutive years. Employees working over 1000 hours are included after one year of service. This provision is effective January 1, 2025.
Closing
If you are a military spouse and are employed by a small business, make sure that the business owner or appropriate party is aware of the military spouse tax credit. It is your chance to start saving for retirement and retain any employer contribution even though a move is inevitably in your future.
If you are a part-time employee that fits the parameters set above, you can look forward to improved retirement plan coverage in 2025.
Start saving for your future!
Bev Bowers
Questions for a military spouse: Do you think the employer tax credit will make a difference? Have you found it difficult to save for retirement? What other financial challenges do you have that are unique to the military? I would love to hear more about your experience – Click here to contact me with your questions!
