The IRS is detailing that low- and moderate-income workers can earn a special tax credit in 2013 by saving for retirement. The credit helps to offset part of the first $2,000 that workers voluntarily contribute to IRAs, 401(k)s, or similar retirement programs. This credit is called the retirement savings contributions credit and is available in addition to any other tax savings that apply. There is still time to take advantage of this credit as individuals have until April 15th, 2014 to set up a new retirement plan or add money to an existing IRA for 2013. However, individuals must make their contributions by the end of the calendar year to 401(k) plans or other workplace plans, 403(b) plans for employees of public schools and certain tax-exempt organizations, 457 plans for state or local government employees, and the Thrift Savings Plan for federal employees. So who qualifies for this credit?
• Married couples filing jointly with incomes up to $59,000 in 2013 or $60,000 in 2014
• Heads of Household with incomes up to $44,250 in 2013 or $45,000 in 2014; and
• Married individuals filing separately and singles with incomes up to $29,500 in 2013 or $30,000 in 2014. The saver’s credit works by increasing a taxpayer’s refund or reducing the amount of tax he or she owes. While the maximum amount for the saver’s credit is $1,000 for singles and $2,000 for a married couple, the IRS warns that the credit will often be much less and could be zero due to the impact of other deductions and credits.
Form 8880 is used to claim the saver’s credit and has instructions on how to calculate the credit correctly. In order to qualify for the credit eligible taxpayers must be at least 18 years of age, not claimed as a dependent on someone else’s tax return, and not a student. More information can be found about this credit on IRS.gov.
These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.