The Internal Revenue Service said
Thursday that low- and moderate-income workers can take steps now to save for
retirement and earn a special tax credit in 2012 and the years ahead.
The saver’s credit helps offset part
of the first $2,000 that workers voluntarily contribute to IRAs and to 401(k)
plans and similar workplace retirement programs. Also known as the retirement
savings contributions credit, the saver’s credit is available in addition to
any other tax savings that apply.
Eligible workers still have time to
make qualifying retirement contributions and get the saver’s credit on their
2012 tax return, the IRS noted. People have until April 15, 2013, to set up a
new individual retirement arrangement or add money to an existing IRA and still
get credit for 2012.
However, elective deferrals
(contributions) must be made by the end of the year to a 401(k) plan or similar
workplace program, such as a 403(b) plan for employees of public schools and
certain tax-exempt organizations, a governmental 457 plan for state or local
government employees, and the Thrift Savings Plan for federal employees. Employees
who are unable to set aside money for this year may want to schedule their 2013
contributions soon so their employer can begin withholding them in January.
The saver’s credit can be claimed
by:
• Married couples filing jointly
with incomes up to $57,500 in 2012 or $59,000 in 2013;
• Heads of Household with incomes up to $43,125 in 2012 or $44,250 in 2013; and
• Married individuals filing separately and singles with incomes up to $28,750 in 2012 or $29,500 in 2013.
• Heads of Household with incomes up to $43,125 in 2012 or $44,250 in 2013; and
• Married individuals filing separately and singles with incomes up to $28,750 in 2012 or $29,500 in 2013.
Like other tax credits, the saver’s
credit can increase a taxpayer’s refund or reduce the tax owed. Though 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 2010, the most recent
year for which complete figures are available, saver’s credits totaling just
over $1 billion were claimed on more than 6.1 million individual income tax
returns. Saver’s credits claimed on these returns averaged $204 for joint
filers, $165 for heads of household and $122 for single filers.
The saver’s credit supplements other
tax benefits available to people who set money aside for retirement.
For
example, most workers may deduct their contributions to a traditional IRA.
Though Roth IRA contributions are not deductible, qualifying withdrawals,
usually after retirement, are tax-free. Normally, contributions to 401(k) and
similar workplace plans are not taxed until withdrawn.
Other special rules that apply to
the saver’s credit include the following:
• Eligible taxpayers must be at
least 18 years of age.
• Anyone claimed as a dependent on someone else’s return cannot take the credit.
• A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
• Anyone claimed as a dependent on someone else’s return cannot take the credit.
• A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
Certain retirement plan
distributions reduce the contribution amount used to figure the credit. For
2012, this rule applies to distributions received after 2009 and before the due
date, including extensions, of the 2012 return. Form 8880 and its instructions
have details on making this computation.
Begun in 2002 as a temporary provision,
the saver’s credit was made a permanent part of the Tax Code in legislation
enacted in 2006. To help preserve the value of the credit, income limits are
now adjusted annually to keep pace with inflation. More information about the
credit is on IRS.gov.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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