What Is the Savers Tax Credit?
The Savers Credit, formerly known as the Retirement Savings Contributions Credit, is a tax credit that allows taxpayers to reduce their tax liability based on contributions to a qualified retirement savings account, such as a 401(k) plan.
How the Savers Tax Credit Works
The credit is designed to encourage low- to moderate-income taxpayers to put money into retirement savings accounts. For 2011, the maximum amount of the credit was $1,000 if single and $2,000 if married and filing jointly. The amount of the Savers Credit depends on the taxpayer’s income, the level of the contribution, and the credit rate for the savings account. Taxpayers with lower incomes can claim a higher Savers Credit, but taxpayers with an adjusted gross income over $28, 250 if single or $56,500 if filing jointly are ineligible for the credit.
Savers Tax Credit: Additional Requirements
Even if a taxpayer’s income falls within the range of eligibility for the Savers Credit, there are other requirements that the taxpayer must meet before claiming the credit on their tax return. For instance, a taxpayer claiming the credit must be over 18 years of age, cannot be a full-time student, and no one else can claim the taxpayer as an exemption on their own return. Taxpayers must also subtract the amount of any distributions they receive from the account during the tax year from the amount of contributions that they claim.
The retirement account receiving the contributions must also qualify in order for a taxpayer to claim a Savers tax Credit. To learn more about which contributions are eligible for the Savers Credit, see the instructions for IRS Form 8880.