Safe Harbor 401(k) Deadline: October 1

As we move through the year, we want to flag an important retirement plan deadline. The IRS requires new Safe Harbor 401(k) plans to be set up and ready to receive contributions no later than October 1 for the plan to be effective for the current calendar year. Miss it, and you’ll need to wait until January 1 of next year to start, losing a year of potential tax savings.

Because employee notices must go out 30 to 90 days before the plan takes effect, the practical deadline is closer to September 1. If you’re considering a plan for this year, now is the time to start the conversation.

Why consider a Safe Harbor plan:

• • Higher deductible retirement contributions for owners and key employees
  • Automatic pass on ADP/ACP nondiscrimination testing
  • Improved employee retirement benefits
  • Federal tax credits that can substantially offset setup costs

SECURE 2.0 Tax Credits

Many small businesses don’t realize how much Congress expanded retirement plan tax incentives. For employers with 50 or fewer employees, the federal startup credit covers 100% of qualified plan startup and administration costs, up to $5,000 per year for three years, up to $15,000 total. Employers with 51 to 100 employees may qualify for a partial credit.

Separately, eligible employers can claim an employer contribution tax credit of up to $1,000 per eligible employee annually, phased down over five years. Adding automatic enrollment can add another $500 annual credit for three years.

For a business with 15 employees contributing $1,000 per eligible employee, the combined credits can make the net cost of starting a plan far lower than most owners expect.

If your business doesn’t currently offer a retirement plan, or you’re evaluating a new 401(k), SIMPLE IRA, or SEP, contact our office. We can prepare a customized analysis showing your estimated tax savings and available credits before the October 1 deadline

Work Opportunity Tax Credit (WOTC)

Many businesses are missing out on the Work Opportunity Tax Credit, a dollar-for-dollar federal credit for hiring individuals from certain targeted groups, including veterans, SNAP recipients, SSI recipients, and long-term unemployed individuals.

Most qualifying hires generate up to $2,400 per employee, while certain veteran hires can generate credits of up to $9,600 per employee. A business with 10 qualifying hires could see $24,000 or more in federal credits.

The key is identifying eligible employees and completing the required certification paperwork during onboarding. Many employers lose this credit simply because the forms aren’t completed on time.

If your business hires throughout the year, contact our office for a WOTC eligibility review.

One Big Beautiful Bill: Overtime Tax Deduction

The One Big Beautiful Bill Act (OBBBA) created a new federal income tax deduction for qualified overtime pay, effective for tax years 2025 through 2028.

Key details:

• • The deduction applies to the premium portion of overtime pay only, the “half” in “time-and-a-half,” not the full overtime wage
  • Capped at $12,500 annually for single filers, $25,000 for married filing jointly
  • Phases out for taxpayers with modified adjusted gross income above $150,000 (single) or $300,000 (joint), reduced $100 for every $1,000 over the threshold
  • Available whether the taxpayer itemizes or takes the standard deduction
  • Only non-exempt W-2 employees under FLSA overtime rules qualify; salaried exempt employees and independent contractors do not
  • Overtime pay is still subject to Social Security and Medicare taxes

Starting with the 2026 tax year, W-2s will include a dedicated box for qualified overtime compensation. For 2025, employers have flexibility in how they report this to employees.

These deadlines and credits move fast, and the paperwork behind them takes lead time to get right. If any of these opportunities apply to your business, whether it is a Safe Harbor 401(k), tax credits for hiring, or new overtime deduction rules, the time to act is now. The October 1 deadline is closer than it looks, and the steps that need to happen before it requires time you may not have if you wait.

Do not leave money on the table. Reach out today and let us put together a customized analysis of your tax savings and available credits before the window closes.

Teresa Ferruzzo, CPA, is a Partner at abip Advisors with deep expertise in tax planning and business advisory services. To learn more or schedule a consultation, contact Teresa directly at 713.350.2423, or by email tferruzzo@abipadvisors.com.