IRS Reminds Workers About Saver’s Credit

December 13, 2012 ( Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit, according to the Internal Revenue Service (IRS).

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to individual retirement accounts (IRAs), 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. 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 agency suggested.  

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. 

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 more than $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.  

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; and 
  • A student cannot take the credita person enrolled as a full-time student during any part of five 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 dateincluding extensionsof the 2012 return. Form 8880 and its instructions have details on making this computation.