- Days left

A Tax Credit for Savers: Do You Qualify?

The Savers Credit allows people to receive a tax credit for their savings contributionsThese days, almost everyone is looking for more ways to save money. What if you could save money and get a tax break for doing it? Under the ramped-up Retirement Savings Contribution Credit, sometimes called the Savers Credit, you can.

If you make qualifying contributions to an IRA, 401(k) and certain other retirement plans, you may be able to take a tax credit of up to $1,000 for individual taxpayers or up to $2,000 for married taxpayers filing jointly. Qualifying contributions include those, other than rollover contributions, made to a traditional or Roth IRA; elective deferrals to a 401(k) plan (including a SIMPLE 401(k)); a section 403(b) annuity; an eligible deferred compensation plan of a state or local government (a governmental 457 plan); a SIMPLE IRA plan; a SEP; or contributions to a 501(c)(18)(D) plan. In other words, almost every kind of mainstream retirement plan qualifies.To be eligible for the credit, you have to be at least 18-years-old (the IRS specifically requires you to be born before Jan. 2, 1993) and not a full-time student during the calendar year. You may also not be claimed as a dependent on any other taxpayer's income tax return.

The credit is clearly aimed at low- to middle-income taxpayers, so income phase-outs apply. Individual taxpayers, married taxpayers filing separately or qualifying widow(er)s may only qualify if adjusted gross income, or AGI (found on line 38 of the form 1040; line 22 of the form 1040A; or line 37 of the form 1040NR), is $27,750 or less. Taxpayers filing as head of household may only qualify if AGI is $41,625 or less. Married taxpayers filing jointly may not have AGI of more than $55,000.

All savers credits are not the same. The credit is actually a percentage of your qualifying contribution amount -- the rates for the credit range from 10% to 50% of that amount. Since the rates decrease as income increases, taxpayers at the bottom of the scale have a greater benefit from saving.

To claim the credit, file a form 8880, Credit for Qualified Retirement Savings Contributions. You'll figure your credit by subtracting the amount of any retirement distributions you've received from your retirement plans during the "testing period" from the contributions you've made. For purposes of determining contributions, any distributions your spouse receives are also treated as received by you if you file jointly both for the year of the distribution and for the year in which you claim the credit. The "testing period" is considered to be the year you claim the credit through the due date for filing your return, including extensions, and the two tax years prior.

The best part of the credit? You don't have to choose between tax breaks. The Savers Credit is in addition to other tax breaks you earn from contributing to a retirement account. Your tax deferrals, tax deductions and other perks remain in place, making the credit the biggest incentive to save this year.


Increase your money and finance knowledge from home

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

Getting out of debt

Everyone hates debt. Get out of it.

View Course »

TurboTax Articles

Ways To Increase Your Tax Refund You Never Thought About

Laying the groundwork for a tax refund requires some simple tax planning, a little research and some forethought. Reviewing your tax status, consulting your spouse when filling out your W-4s and taking advantage of several tax credits can help you increase your tax refund. TurboTax also can help decide which credits can get you the biggest refund.

What Extra Tax Deductions Should I Make Sure To Take?

The federal government offers tax deductions and credits to reduce taxable income under certain circumstances. There are several that are often overlooked, including deductions for job hunting, caregiver expenses for dependents and children while you work, a credit to reduce taxes for moderate- to low-income earners and the premium tax credit associated with the Affordable Care Act. TurboTax can help determine if you qualify for these credits and deductions.

8 Things You Think Are Tax Deductible That Aren't

There?s a fine line between looking to save money on your taxes and taking deductions that will raise eyebrows at the Internal Revenue Service. Some taxpayers are tripped up by expenses that they assume are tax deductions, but don?t qualify under IRS guidelines. Here are a dozen items that can lead to unpleasant surprises in case of an audit.

9 Things You Didn't Know Were Tax Deductions

Few realizations are more painful than realizing that you forgot to include a tax deduction that would have lowered your tax bill or increased your tax refund on your tax return. Here are some tax deductions that you shouldn't overlook.

Add a Comment

*0 / 3000 Character Maximum