Optima Tax Relief Reviews the Saver’s Credit
The IRS is reminding qualified workers to save for retirement now to earn a tax credit for tax year 2022 and more years ahead. Optima Tax Relief reviews the credit called the Retirement Savings Contributions Credit, otherwise known as the Saver’s Credit.
The Saver’s Credit is a maximum of $1,000 or $2,000 for married couples. It is available to any worker who voluntarily contributes at least $2,000 to an IRA, 401(k) plan or similar workplace retirement program. It is also available to any eligible person with a disability who is the beneficiary of an Achieving a Better Life Experience (ABLE) account.
Even though 2022 is over, eligible workers can still make qualifying retirement contributions to claim the Saver’s Credit on their 2022 tax return. Workers can contribute to a brand new or existing IRA account until they file their return. The deadline to file a 2022 return is April 18, 2023. Workers who contribute to a workplace retirement plan do not have this same luxury. Only contributions made during 2022 will count. These plans can include a 401(k), 403(b) plan for public school employees or those who work for a tax-exempt organization, 457 plan for state or local government employees, Thrift Savings Plan (TSP) for federal employees, and other certain plans.
There are income limits that apply to the Saver’s Credit. Married couples filing jointly with adjusted gross incomes (AGIs) up to $68,000 in 2022 qualify. In 2023, the AGI is increased to $73,000 for inflation. Heads of households with AGIs of $51,000 in 2022 or $54,750 in 2023 will qualify. Married individuals filing separately and single filers qualify if they have incomes up to $34,000 in 2022 or $36,500 in 2023. Taxpayers also need to be at least 18 years old to claim the credit and cannot be claimed as a dependent on another return. Additionally, students may not take the credit. The IRS considers anyone who attends school full-time during any part of five calendar months during the year to be a student.
As mentioned, the maximum credit is $1,000, or $2,000 for married couples, but the amount deducted is usually much less. The credit is determined based on filing status, AGI, tax liability and the amount contributed to retirement. In tax year 2020, the average credit was about $186. The credit can be claimed in addition to other tax savings as well. For example, some taxpayers might deduct their traditional IRA contributions and claim the Saver’s Credit.
