Starting in 2021, businesses with newly established employee stock ownership plans will have until the extended tax corporate return due date (September 15, 2021) to make tax-deductible, 2020 contributions.
This is a result of the SECURE Act’s passage in December 2019. Propelled by overwhelming congressional support, the legislation is focused on facilitating the establishment of “safe harbor” retirement plans by private business owners. By extension, it will have a major impact on ESOPs.
In Section 201 of the act, businesses are granted permission to treat qualified retirement plans adopted before the tax return due date (including extensions) as having been adopted on the last day of the taxable year. Simply put, a company that’s considering an ESOP, or another qualifying retirement plan in 2020, has until September 2021 to establish the plan and still make 2020 tax-deductible contributions.
The legislation ultimately provides business owners greater flexibility in their ESOP planning. The results: more time for comprehensive plan design, increased opportunities for tax relief, and reduced end-of-year pressure for business owners considering ESOPs.
The SECURE Act - Full Text
Click here to review the legislation in its entirety. Passed as part of H.R. 1865 (Further Consolidated Appropriations Act, 2020), the SECURE Act can be found beginning on page 604 (Division O).