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Get Credit for Retirement Savings Contributions
Taxpayers who contribute to a retirement plan, like a 401(k) or an IRA, may be able to claim the Saver’s Credit to help save for retirement and reduce taxes simultaneously.
Here are some crucial facts about the Retirement Savings Contributions Credit:
1. Nonrefundable Credit. The maximum contribution is $2,000 per person and those filing a joint return can also contribute $2,000, for the spouse. However, the credit cannot exceed the amount of tax that a taxpayer would otherwise pay in taxes. This credit will not change the amount of refundable tax credits.
2. Limits. Taxpayers may be able to claim the credit contingent on their filing status and the amount of their annual income. They may be eligible for the credit on their 2016 tax return if they are:
- Married filing jointly with income up to $61,500
- Head of household with income up to $46,125
- Married filing separately or a single-taxpayer with income up to 430,750
3. Other rules. Other rules that pertain to the credit include:
- Taxpayers must be at least 18 years of age.
- They can’t have been a full-time student in 2016.
- No other person can claim them as a dependent on their tax return.
4. Contribution Date. A taxpayer must have contributed to a 401(k) plan or comparable workplace plan by the end of the year to claim this credit. However, the taxpayer may contribute to an IRA by the due date of their tax return and still have it count for 2016. The due date for most people is April 18, 2017.
5. Interactive Tax Assistant Tool (ITA). The ITA tool is a tax law resource that asks taxpayers a series of questions and offers a response based on their answers. Taxpayers can use “Do I Qualify for the Retirement Savings Contribution Credit?” to determine if they qualify to claim the Saver’s Credit.
6. Form 8880. File Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit.
All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using software for the first time may need their Adjusted Gross Income amount from their previous tax return to verify their identity.
For any tax questions about retirement savings contribution credits, always consult a Certified Public Accountant.
Submitted by: Debie Leonard, CPA- Shareholder, Tax Services Department, Thomas Howell Ferguson P.A. CPAs (850) 668-8100 or firstname.lastname@example.org.
Thomas Howell Ferguson is a Certified Public Accounting firm (CPA) with offices in Tallahassee and Tampa, FL. We employ over 85 CPAs in both the Tallahassee and Tampa offices. We specialize in audits, taxes, assurance, and business consulting for governmental, not-for-profit, small business, insurance, and SEC clients.
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