One significant tax break through recent COVID relief legislation is the Employee Retention Tax Credit. Does your company qualify?
Can You Claim the Saver's Credit on Your Taxes?
Even if you already contribute to a retirement plan, you may be a fit for the savers credit, an added tax credit that's open to all workers
If you contribute to a retirement plan and are a low-to-moderate income earner, you may be able to claim the Saver’s Credit on your taxes this year.
What is the Saver’s Credit?
“The Saver’s Credit is a tax credit [that] reduces an eligible taxpayer’s federal income tax, making it an important incentive for low- to moderate-income individuals and households to save for retirement in a 401(k), 403(b), IRA, or new myRA,” said Catherine Collinson, president of nonprofit Transamerica Center for Retirement Studies. Unfortunately, many tax payers are missing out simply because they are unaware of this credit, or perhaps they believe that a double benefit may be “too good to be true.”
The Saver’s Credit is a credit available to those who contributed towards a retirement plan in 2016, whether it be a company-sponsored plan such as a 401(k) or an individual retirement account (IRA).
How much a worker can claim with the Saver's Credit
The available credit amount is based on your “credit rate” which is determined by your income and filing status. That “credit rate” (10%, 20%, or 50%) is then multiplied by the money you contributed into your retirement account to calculate your tax credit. The maximum credit amount is $1,000 per individual or $2,000 per married couple. This tax credit is “non-refundable,” meaning it cannot increase your tax refund; however, it can reduce your tax liability if you are expecting to owe taxes this year.
Who can claim the Saver’s Credit?
In order to claim the Saver’s Credit, you:
- Must be at least 18 years old;
- Have contributed to a retirement account this past year;
- Cannot be a full-time student or claimed as a dependent by another tax filer;
- Must meet the following Adjusted Gross Income (AGI) requirements:
- Individual up to $30,750 in 2016 or $31,000 in 2017; or
- Head of a household up to $46,125 in 2016 or $46,500 in 2017; or
- Married filing a joint return up to $61,500 in 2016 or $62,000 in 2017.
Details on claiming the Saver's Credit
According to Transamerica Center for Retirement Studies:
- If you are using tax preparation software to prepare your tax return, including those programs offered through the IRS Free File program, use Form 1040, Form 1040A or Form 1040NR. The credit is not available with Form 1040EZ. If your software has an interview process, be sure to answer questions about the Saver’s Credit, also referred to as the Retirement Savings Contributions Credit and/or Credit for Qualified Retirement Savings Contributions.
- If you are preparing your tax returns manually, complete Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your exact credit rate and amount. Then transfer the amount to the designated line on Form 1040, Form 1040A or Form 1040NR.
- If you are using a professional tax preparer, be sure to ask about the Saver’s Credit.
To learn more about the Saver’s Credit, visit www.irs.gov. “Be sure to tell your colleagues, friends and family about the Saver’s Credit. Many may have contributed to a 401(k) plan or IRA and are eligible receive it -- but just don’t know about it,” said Collinson.
If your business is in the market for a company-sponsored retirement plan, Stratus.hr offers a 401k multi-employer plan that greatly reduces the administrative costs and fiduciary responsibilities than those of a traditional employer-sponsored retirement plan. Please contact us for more information.