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Qualifying for the Retirement Savings Contributions Credit

Qualifying for the Retirement Savings Contributions Credit

If you contribute money into a retirement savings account, you may qualify for a Saver's Tax Credit (formerly known as the Retirement Savings Contribution Credit) this year. At Liberty Taxes & Business Services, we want you to claim all of the deductions and credits that you are owed. We find that too many tax payers are not receiving the money they are due, because they are not aware of the benefits waiting for them. The Internal Revenue Service will not point out these missed credit opportunities to you. You need to find a tax professional who knows the credit system, and how to take advantage of it for you.

What is the Retirement Savings Credit?

  • The Saver's Credit was created as a reward for individuals and families of a certain income level who contribute money toward their own retirement. This tax credit is unknown by most Americans, in fact, it is only used by roughly 12% of the eligible tax payers. This means there are thousands more people out there that could be benefiting from the credit and are not. Speak to your tax preparer or accountant to determine if you can receive the Saver's Tax Credit. Claiming this credit could turn the tide on your tax return, even gaining you a refund.

Do You Qualify for the Saver's Credit?

  • There are specific criteria you must meet to be eligible for the Saver's Tax Credit. First and foremost, you must be eighteen years of age or older, and not claimed as a dependent on anyone other person's tax return. You also cannot be a full time student. Additionally, the contributions that you made toward your retirement fund must have been made in the tax year that you are filing for.
  • With the above requirements being met, the remaining considerations are centered around your income. This plan was created for lower and middle income class tax payers. For this demographic, it is more difficult to save for retirement, as they do not have as much in savings readily available each month.
  • For the year 2015, the income requirements are determined based upon your filing status. Married couples filing jointly cannot have earned more than $60,000 in the year. Persons filing as the Head of Household are limited at $45,000. All other individual tax payers cannot have exceeded $30,000. These may seem like low income levels, but are actually very accurate for the current middle and low class earners in the country.
  • The amount of credit that you receive is then again determined by your income and filing status. This means that making less than the amounts given per year ensures that you will receive the credit, and then how much of that credit in actual dollars.
  • For example, single tax payers who earn between $19,751 and $30,000 will receive a 10% tax credit. If that same tax payer earns $18,251 to $19,750, they will receive a 20% tax credit. If they earn less than $18,250, they are eligible for a 50% Saver's Tax Credit.

How Much Will the Credit Save You?

  • The answer to that depends completely upon your income level and how much credit you qualify for. As stated above, tax payers may receive 10%, 20%, or 50% in credit. That percentage is applied to the first $2,000 that was contributed to their retirement account.
  • Based upon these numbers, this means that at a maximum, filers may receive between $200 and $1,000 in credit on their tax return. At the highest level, a married couple could receive as much as $2,000. That money could go a long way to decreasing or even eliminating their tax bill.
  • Based upon the understood values given, we can determine how much the Saver's Credit will save you on your income taxes. If you are a single filer that contributed $3,000 to your 401k, and you earned a total adjusted gross income of $18,750, your credit will be $400.

What Retirement Accounts Qualify?

  • There are many different accounts which are eligible for the Saver's Tax Credit. The main thing to remember is that any contributions made by your employer do not count toward the credit, only the money that you deposit yourself.
  • Traditional IRAs and Roth IRAs are both eligible for the Saver's Tax Credit.
  • Contributions made to any 401k plans, 403(b) plans, simple IRAs, SEP IRAs, and 457 plans are all qualified for the Saver's Tax Credit.

How to Claim the Saver's Credit

  • The Saver's Tax Credit is claimed on Form 8880. Tax payers should understand that this form can only be used if you are filing a Form 1040, 1040A, or 1040NR. The 1040EZ does not allow for the addition of a Form 8880. If you believe that you are due the Saver's Tax Credit, find a tax preparer to help you file the proper paperwork.

If you believe you are missing out on your tax credit opportunities, contact us at Liberty Tax & Business Services today. My name is Marta Torres, and I want to help you get the most out of your income tax refund. My colleagues are proficient tax preparers and accountants who understand how taking the right tax credits can turn your taxes around. We suggest that you find a tax preparer in your area who can do the same for you.


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