At the moment of filing taxes, our accountants suggest, that if you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be eligible for a tax credit on your federal taxes, depending on your age and income.
Here are five things you should know about the Savers Credit:
- Income limits. The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a tax filing status and 2011 income of:
- Single, married filing separately, or qualifying widow(er), with income up to $28,250
- Head of Household with income up to $42,375
- Married Filing Jointly, with incomes up to $56,500
- Eligibility requirements. To be eligible for the credit you must be at least 18 years of age, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s income tax return.
- Tax Credit amount. If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a tax credit of up to $1,000 ($2,000 if filing jointly). The taxes credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.
- Distributions. When figuring this tax credit, you generally must subtract distributions you received from your retirement plans from the contributions you made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing a tax return for the credit year.
- Other federal tax benefits. The Retirement Savings Contributions Credit is in addition to other tax benefits you may receive for retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
The income limits for 2012 have yet to be released by the IRS. For more information about our accounting services, bookkeeping, payroll or any back taxes help, contact us at 407-344-1012.