The Saver's Tax Credit Explained
If you're contributing to a retirement savings plan, congratulations -- you're already ahead of the game. If you're eligible, the saver's tax credit rewards you for your foresight. If you're a low or moderate wage earner, this program was created to encourage your long-term savings plans. Generally the lower your income, the higher your credit.
The saver's tax credit can reduce your income tax by up to $1,000 if you file singly and or $2,000 if you file jointly. Of course, not everyone gets the same credit. It's determined by several different factors, like how much money you contributed to your retirement plan and the percentage of your contributions that qualify. It's also important to remember that this is a tax credit, not a refund -- so it will reduce your tax bill, but the savings won't come back to you in the form of money.
You can get a 10 percent, 20 percent, or 50 percent credit on the first $2,000 per year that you contribute to your retirement plan. The credit that you receive is calculated as a percentage and mostly depends on your adjusted gross income (AGI). Your AGI is your gross income after subtracting any allowable deductions.
Here is the saver's tax credit information for 2014 [source: IRS].
For a 50 percent credit:
- Married and filing jointly: AGI no more than $36,000
- Filing as head of household: AGI no more than $27,000
- All other filers: AGI no more than $18,000
For a 20 percent credit:
- Married and filing jointly: AGI between $36,001 - $39,000
- Filing as head of household: AGI between $27,001 - $29,250
- All other filers: AGI between $18,001 - $19,500
For a 10 percent credit:
- Married and filing jointly: AGI between $39,001-$60,000
- Filing as head of household: AGI between $29,251 - $45,000
- All other filers: AGI between $19,501 - $30,000
You receive no credit if:
- Married and filing jointly: AGI more than $60,000
- Filing as head of household: AGI more than $45,000
- All other filers: AGI more than $30,000
So do you qualify? Find out if you can make the saver's tax credit work for you.