A lot of people don’t know about or take advantage of a little known credit called the savers credit, officially referred to as the retirement savings contributions credit. The IRS has released 2013 details on the qualifying maximum income levels to claim the credit, which reflect a modest increase over 2012 levels meaning more people may qualify for the credit in 2013. The saver’s credit was made a permanent part of the tax code in 2006 and income limits are now adjusted annually to keep pace with inflation.
The savers credit works by offsetting part of the first $1,000 (singles) or $2,000 (married) workers voluntarily contributions to tax advantaged retirement plans such as IRAs and employer sponsored workplace plans. Obviously one must be contributing to these plans to claim the savers credit. The credit is available in addition to any other tax savings that apply to the contributions.
You claim the credit based on your filing status and if your maximum adjusted gross income (AGI) falls below the following thresholds:
- Married couples filing jointly: $57,500 in 2012 or $59,000 in 2013
- Heads of Household: $43,125 in 2012 or $44,250 in 2013
- Singles or Married individuals filing separately: $28,750 in 2012 or $29,500 in 2013
The savers credit is even sweeter because it is a tax credit, not merely a deduction. Meaning that you get the actual credit amount back in your tax refund or subtracts the value from the taxes you owe. Whereas a deduction simply subtracts the value from your taxable income and gives you nothing if you don’t owe taxes. Last year the IRS reported that over $1 billion of saver’s credits was claimed on just over 6.1 million individual income tax returns, with the average claimed on these returns averaged $204 for joint filers, $165 for heads of household and $122 for single filers
To claim the credit use form 8880 or any recommended tax software. Eligible taxpayers must also be at least 18 years of age and not be enrolled as a full-time student. You have until April 15, 2013, to set up a new and/or add to an existing IRA and still get the savers credit for 2012. However, elective deferrals (contributions) must be made by the end of the year to a 401(k), 457 or 403(b) plan or similar employer sponsored plan. See more on retirement plans in the 401K/IRA resource page, including new 2013 contribution limits. Also see updated limits on the populate Earned Income Tax Credit (EITC)