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The Tax Saver’s Credit

The Tax Saver’s Credit

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How to earn a tax saver’s credit

Certain tax incentives can potentially reduce your federal income tax liability when you contribute to your company’s 401(k) or 403(b) plan. Eligible taxpayers can earn a Tax Saver’s Credit—up to $1,000 for individuals and $2,000 for married couples filing jointly—on qualifying contributions to an employer sponsored retirement savings plan.

Background 

Contributing a portion of your earnings into a retirement plan pre-tax ultimately reduces the amount of your income that is subject to federal taxation. Generally, the money that sits in your 401(k) or 403(b) plan grows tax deferred until you receive a distribution. When you qualify for the Tax Saver’s Credit, you have the opportunity to reduce your taxes further.

Who Qualifies 

Taxpayers can qualify for the credit based on a number of criteria:

  • The individual is 18 years or older
  • The taxpayer is not a full-time student or claimed as a dependent on another person’s tax returns
  • The individual’s Adjusted Gross Income (AGI)
  • The individual’s tax filing status
  • The taxpayer’s retirement contribution

Using the chart below, you can determine your eligibility for the Tax Saver’s Credit in 2019. Begin by taking your AGI (total income minus all qualified deductions) and refer to the chart to see if you qualify and how much you can claim.

Filing Status/Adjusted Gross Income for 2019

Amount of Credit Joint Head of Household Single/Others
50% of amount deferred $0 to $38,500 $0 to $28,875 $0 to $19,250
20% of amount deferred $38,501 to $41,500 $28,876 to $31,125 $19,251 to $20,750
10% of amount deferred $45,501 to $64,000 $31,126 to $48,000 $20,751 to $32,000

The Tax Saver’s Credit ranges from 10 percent to 50 percent of your annual contributions—if you are eligible, you may owe less in federal taxes. Please contact us to learn more about contributing to your retirement plan and the Tax Saver’s Credit.

Distributions before the age of 59 ½ may be subject to an additional 10% early withdrawal penalty. This is for informational purposes only; we suggest that you speak with a tax professional about your individual situation. Source: IRS Form 8880
Sikich Financial does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation.

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