Plan Now to Earn a Credit on 2017 Tax Return
To earn a credit on your 2017 tax return, the Internal Revenue Service reminds low and moderate-income workers, plan now. A special tax break can help those with modest incomes save for retirement.
It’s called the “Saver’s Credit” and it could mean up to a 50% credit for the first $2,000 a taxpayer contributes to a retirement plan.
Also known as the Retirement Savings Contributions Credit, the Saver’s Credit helps offset part of the amount workers voluntarily contribute to a traditional or Roth IRA, a 401(k) or 403 (b) plan and similar workplace retirement programs.
Taxpayers with an IRA have until Tuesday, April 17, 2018, to contribute to the plan and still have it qualify for 2017.
However, contributions (elective deferrals) to an employer-sponsored plan must be made by the end of the year to qualify for the credit. Employees who are unable to set aside money for this year may want to schedule their 2018 contributions soon so their employer can begin withholding in January.
The Saver’s Credit can be claimed by:
- Married couples filing jointly with incomes up to $62,000 in 2017or $63,000 in 2018
- Heads of Household with incomes up to $46,500 in 2017 or $47,250 for 2018
- Singles and married individuals filing separately with incomes up to $31,000 in 2017 or $31,500 in 2018
To qualify for the credit, a person must be:
- Age 18 or older
- Not a full-time student
- Not claimed as a dependent on another person’s tax return
Like other tax credits, the Saver’s Credit can increase a taxpayer’s refund or reduce the amount of 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 may be zero for some taxpayers.
The amount of the credit is based on filing status, income, overall tax liability and the amount contributed to a qualifying retirement plan. It may also be impacted by other credits and deductions or reduced by any recent distributions from a retirement plan.
To claim the Saver’s Credit, taxpayers must complete Form 8880 and attach it to their tax return. Form 8880 cannot be used with form 1040EZ.
In tax year 2015, the most recent year for which complete figures are available, Saver’s Credits totaling nearly $1.4 billion were claimed on more than 8.1 million individual income tax returns.
The Saver’s Credit can also add to other tax benefits available to people who contribute to their retirement; for example, most workers can also deduct contributions to a traditional IRA.