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Getting ‘Credit’ Where Credit Is Due

The Internal Revenue Service is reminding low- and moderate-income workers about an opportunity to earn a special tax credit while they save for retirement.

The IRS notes that the Saver’s Credit helps offset part of the first $2,000 that workers voluntarily contribute to IRAs and 401(k) plans and similar workplace retirement programs, and that eligible workers still have time to make qualifying retirement contributions and get the credit on their 2014 tax returns.

While individuals have until April 15, 2015, to set up a new IRA or add money to an existing one for 2014, contributions must be made by the end of the year to workplace savings programs like a 401(k) plan, a 403(b) plan, a governmental 457 plan, or even the Thrift Savings Plan for federal employees. 

The IRS explains that employees who are unable to set aside money for this year may want to schedule their 2015 contributions soon so their employer can begin withholding them in January.

Who Can Claim

The IRS notes that the Saver’s Credit can be claimed by:

• married couples filing jointly with incomes up to $60,000 in 2014 or $61,000 in 2015;
• heads of households with incomes up to $45,000 in 2014 or $45,750 in 2015; and
• married individuals filing separately and singles with incomes up to $30,000 in 2014 or $30,500 in 2015.

While the maximum Saver’s Credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer’s credit amount is based on:

• his or her filing status;
• adjusted gross income;
• tax liability; and
• amount contributed to qualifying retirement programs.

Form 8880 is used to claim the Saver’s Credit, and its instructions have details on figuring the credit correctly.

In tax year 2012, the most recent year for which complete figures are available, Saver’s Credits totaling $1.2 billion were claimed on more than 6.9 million individual income tax returns. Saver’s Credits claimed on these returns averaged $215 for joint filers, $165 for heads of household and $127 for single filers.

Other special rules that apply to the Saver’s Credit include:

• Eligible taxpayers must be at least 18 years of age.
• A person who is claimed as a dependent on someone else’s return cannot take the credit.
• A student cannot take the credit (someone enrolled as a full-time student during any part of five calendar months during the year is considered a student).