Small Nonprofit Retirement Security Act of 2025
- Bill Number
- S. 2365
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-07-21: Read twice and referred to the Committee on Finance.
- Last Updated
- 2025-12-05T07:00:07Z
AI-Generated Summary
Purpose
The Small Nonprofit Retirement Security Act of 2025 aims to encourage small tax-exempt organizations (such as nonprofits) to establish retirement plans for their employees by extending two existing tax credits to them. These credits, previously available only to for-profit small employers, help cover startup costs and auto-enrollment features in pension plans, promoting broader access to retirement savings.
Key Provisions
- Extension of Credits to Tax-Exempt Employers:
- Amends Section 45E of the Internal Revenue Code to allow tax-exempt small employers (defined as organizations under Section 501(c) that are exempt from federal income tax under Section 501(a)) to claim the credit for small employer pension plan startup costs.
- Amends Section 45T to extend the retirement auto-enrollment credit (which incentivizes automatic enrollment in retirement plans) to these same tax-exempt employers.
- Conversion to Payroll Tax Credits:
- For tax-exempt employers, the credits are treated as reductions against the employer's share of Social Security payroll taxes (under Section 3111(a)), rather than income tax credits.
- The credit amount is the lesser of: (A) the calculated credit under the original sections, or (B) the payroll taxes paid by the employer in the calendar year.
- Adds a new subsection (g) to Section 3111 to implement this payroll tax credit, with limits to ensure it does not exceed total payroll taxes owed for the year.
- Effective Date and Funding Offset:
- Applies to taxable years beginning after December 31, 2024.
- Directs appropriations from the general fund to the Social Security Old-Age and Survivors Trust Fund and the Disability Insurance Trust Fund to cover any revenue loss to the Treasury, mimicking transfers that would occur without the bill.
Significant Changes to Existing Law
- Prior to this bill, the startup costs credit (Section 45E) and auto-enrollment credit (Section 45T) were available only to taxable small employers as income tax credits, excluding nonprofits which do not pay federal income taxes.
- The bill converts these into refundable payroll tax credits for tax-exempt small employers, making them accessible without altering the nonprofits' tax-exempt status.
- Introduces definitions and special rules for "tax-exempt eligible employer" and "payroll tax" (the employer's portion of FICA taxes for Social Security), including a rule to allocate credits proportionally if payroll taxes are insufficient.
Potential Impacts
- On Government Agencies: The IRS will need to administer new payroll tax credit claims for nonprofits, potentially increasing processing workload. The Social Security Administration benefits from dedicated fund transfers to maintain trust fund solvency despite reduced payroll tax revenues.
- On Citizens: Employees of small nonprofits gain better access to employer-sponsored retirement plans, potentially improving long-term financial security, especially for lower-wage workers in the nonprofit sector.
- On International Relations: No direct impact, as the bill focuses on domestic tax policy.
- Overall, it could boost retirement plan adoption among small nonprofits (e.g., charities, religious groups), reducing reliance on public assistance programs in retirement, but at a cost to federal revenues offset by appropriations.
Main Stakeholders Affected
- Small Tax-Exempt Employers: Nonprofits with 100 or fewer employees (eligible under existing credit rules) gain financial incentives to start or enhance retirement plans, lowering setup costs.
- Employees of Nonprofits: Benefit from improved retirement savings options, particularly through auto-enrollment which simplifies participation.
- Federal Government (IRS and Treasury): Handles credit administration and revenue offsets.
- Social Security Trust Funds: Receive protective appropriations to prevent shortfalls.
Notable Legal, Constitutional, or Political Implications
- Legal: Ensures compliance with tax-exempt rules by using payroll taxes (which nonprofits pay) instead of income taxes, avoiding challenges to nonprofit status. The bill's structure aligns with existing refundable credit mechanisms, reducing litigation risk.
- Constitutional: No apparent issues, as it involves Congress's taxing and spending powers under Article I; it does not infringe on free speech or other rights.
- Political: Supports bipartisan goals of enhancing retirement security for underserved sectors like nonprofits, potentially appealing to advocates for worker benefits and small organizations. It may spark debate on federal spending priorities, given the revenue offset through appropriations.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (2)
Sen. Cortez Masto, Catherine [D-NV], Sen. Banks, Jim [R-IN]
Recent Actions
- 2025-07-21: Read twice and referred to the Committee on Finance.
- 2025-07-21: Introduced in Senate
Bill Versions
- Small Nonprofit Retirement Security Act of 2025 — issued 2025-07-21 — PDF (6 pages)