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IRS: 'Saver's Credit' Helps Low- and Moderate-Income Workers Save for Retirement

IRS: 'Saver's Credit' Helps Low- and Moderate-Income Workers Save for Retirement

Special Tax Credit Available for Certain Workers

The Internal Revenue Service (IRS) is reminding low- and moderate-income workers that they can take steps now to save for retirement and earn a special tax credit in 2016 and years ahead.

The saver's credit, also known as the retirement savings contributions credit, helps offset part of the first $2,000 workers voluntarily contribute to IRAs and 401(k) plans and similar workplace retirement programs. The saver's credit can be claimed by:

  • Married couples filing jointly with incomes up to ,500 in 2016 or ,000 in 2017;
  • Heads of household with incomes up to ,125 in 2016 or ,500 in 2017; and
  • Married individuals filing separately and singles with incomes up to ,750 in 2016 or ,000 in 2017.

Note: Like other tax credits, the saver's credit can increase a taxpayer's refund or reduce the tax owed. Though the maximum saver's credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

Saver's Credit
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. IRS Form 8880 is used to claim the saver's credit, and its instructions have details on figuring the credit correctly.

Eligible workers still have time to make qualifying retirement contributions and get the saver's credit on their 2016 tax returns. People have until the due date for filing their 2016 return (April 18, 2017), to set up a new individual retirement arrangement or add money to an existing IRA for 2016. This includes the Treasury Department's myRA. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program (e.g., a 403(b) plan).

Other special rules apply to the saver's credit. Click here and scroll to the bottom for more information.

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