It’s not too early to start planning for the 2013 tax year. Employees who make eligible contributions to an employer-sponsored retirement plan, such as a 401(k), or to an individual retirement arrangement (IRA) may be eligible for a tax credit. Below are five guidelines that can help employees learn more about the Saver’s Credit.
1. Credit Amount. The credit reduces income tax owed. Employees may be able to take a credit of up to $2,000 (for married couples filing jointly) or $1,000 for single taxpayers. The lower an employee’s income, the higher the credit rate.
2. Income Limits. Eligibility for the credit depends on an employee’s income and filing status. For 2012 tax returns, the credit applies to employees with a filing status and income of:
- Single or married filing separately, with income up to $28,750
- Head of household, with income up to $43,125
- Married filing jointly, with income up to $57,500
3. Eligibility Requirements. An employee must be at least 18 years of age to be eligible for the credit. In addition, the employee cannot have been a full-time student in 2012, nor claimed as a dependent on someone else’s tax return.
4. Deadline for Contributions. Contributions to a qualified retirement plan must be made by the due date of an employee’s tax return in order to claim the credit. The due date for most people is April 15th.
5. Other Tax Benefits. The credit is in addition to other tax benefits which may result from the retirement contributions. For example, an employee may be able to deduct all or part of his or her contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.