[Updated with 2015 amounts] This IRS has released 2015 updates for the savers credit, which helps lower income earners save for retirement by providing an offset to retirement plan (401k and IRA) contributions.
A lot of people don’t know about or take advantage of this little known credit, officially referred to as the retirement savings contributions credit.. The savers 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 latest increase represents a moderate change over last years level as shown in the table below.
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:
|Year||Income (AGI) Thresholds by Filing Status To Claim Credit|
|2015||- Married couples filing jointly with incomes up to 61,000;
- Heads of Household with incomes up to $45,750; and
- Married individuals filing separately and singles with incomes up $30,500
|2014||- Married couples filing jointly with incomes up to $60,000;
- Heads of Household with incomes up to $45,000; and
- Married individuals filing separately and singles with incomes up to $30,000
|2013||- Married couples filing jointly with incomes up to $59,000;
- Heads of Household with incomes up to 44,250; and
- Married individuals filing separately and singles with incomes up to $29,500
|2012||- Married couples filing jointly with incomes up to $57,5000;
- Heads of Household with incomes up to $43,125; and
- Married individuals filing separately and singles with incomes up to $28,750
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. Based on the most recent statistics the IRS reported that over $1.2 billion of saver’s credits was claimed with the average claimed averaging $205 for joint filers, $165 for heads of household and $127 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 of the subsequent year to set up a new and/or add to an existing IRA and still get the savers credit. However, elective deferrals (contributions) must be made by the end of the calendar 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.