What kind of tax credit does EGTRRA offer to small employers?

• A. A tax credit equal to 30% of plan expenses
• B. A tax credit equal to 50% of the costs of having a plan
• C. A tax credit for employee wages
• D. A tax deduction for plan contributions

Answer: (B)

The correct answer reflects that the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) provides a tax credit that is equal to 50% of the costs incurred by small employers in establishing and maintaining retirement plans. This tax incentive is specifically designed to encourage small businesses to offer such plans, making it more affordable for them to provide retirement benefits to their employees.

This credit can cover eligible plan expenses, which include costs associated with set-up, administration, and employee education. By incentivizing small employers in this way, EGTRRA aims to increase the prevalence of retirement savings options available to employees of smaller companies, which may have otherwise been deterred due to financial constraints.

The other options do not accurately describe the tax benefits under EGTRRA. For instance, the figure of 30% mentioned does not apply under this act, nor does the concept of a tax credit for employee wages. Additionally, while tax deductions for plan contributions exist, they do not fall under the specific provisions of EGTRRA geared towards small employers. Thus, the focus of the correct answer is on the actionable financial support offered to small employers, promoting the establishment of retirement benefits through a substantial tax credit.