What is it, how to qualify

  • The savings credit is a tax credit that you can claim after contributing to a retirement account.
  • The credit reduces your tax bill by 50%, 20% or 10% of your contribution, depending on your income.
  • Only the first $ 2,000 of contributions ($ 4,000 for a joint deposit) count towards the credit.
  • The accuracy and clarity of this article has been reviewed by Lisa Niser, an expert on the Personal Finance Insider Tax Review Board.
  • View Personal Finance Insider’s Picks For The Best Tax Software »

The retirement savings contribution credit, also called savings credit, is a tax credit that you can benefit from by contributing to a retirement fund. The credit is calculated on your tax return, which is more beneficial than a tax deduction because it gives you a dollar-for-dollar rebate on your tax bill. If you get a $ 500 savings credit, you’ll pay $ 500 less on your tax bill.

The purpose of a savings loan is to put money back in your pocket after saving for retirement. “It’s kind of like an incentive for people to put money aside for retirement with the added benefit of getting credit,” says Cassandra Kirby, Enrolled Agent and Partner and Private Wealth Advisor at Braun. -Bostich & Associates in Pittsburgh.

Who can claim the savings credit?

You can apply for the savings credit, regardless of your filing status: Joint declaring spouse, head of family, single, married filing separately or eligible widower (s) can all benefit from the credit. However, your deposit status determines the maximum income you are subject to.

There are 3 conditions to be able to claim the credit of the saver:

First, you must be over 18 and you cannot depend on someone else’s tax returns or be a student.

Then you must earn below the income threshold for your filing status. For 2021, the maximum income is $ 66,000 for joint filers and $ 49,500 for heads of household. If you deposit in another category, your AGI reaches a maximum of $ 33,000. For 2022, the maximums are $ 68,000, $ 51,000 and $ 34,000.

Since qualifying income is low, it can be difficult to have the right amount of income and owe money in taxes. “This would be of interest to young people who are working and who do not have a significant income, but also retirees or older people who have a lower income but who are still looking for savings and tax-efficient ways to do so,” says Kirby. .

Finally, you must have contributed to an eligible account. Most contributions to any of the following retirement accounts are eligible:

  • Traditional or Roth IRA
  • 401 (k), 403 (b) or government 457 (b)
  • SARSEP or SIMPLE plan
  • Savings plan
  • 501 (c) (18) (D) diet
  • An ABLE account that designates you as beneficiary

“This is something that seniors or retirees should consider if they have part-time income or if their spouse has part-time income,” says Kirby.

How much is the saver’s credit?

Anyone eligible for the savings credit will receive a percentage of their pension contribution in the form of a tax credit. The savings credit is worth 50%, 20% or 10% of your contribution, depending on your income level. However, you can only receive the credit on the first $ 2,000 per person and $ 4,000 per married couple (joint declaration) that you contribute at retirement.

In other words, the maximum credit a person can receive is 50% of $ 2,000 (or $ 1,000) – but the credit can be increased up to $ 2,000 if you are married and are filing jointly. Thus, you can reduce your tax bill by up to $ 1,000 per individual by taking advantage of the savings credit.

The table below explains the percentage you will receive in return based on your income for the current 2021 tax year:

Source: IRS. * Single, married filing separately or eligible widower (s)

And here are the prices for 2022:

Source: IRS. * Single, married filing separately or eligible widower (s)

The financial report

The Savings Credit is a way to lower a tax bill for anyone who can claim it. These savings can offset part of the cost of contributing to a retirement account and reduce the burden of saving for retirement.

When filing taxes, be sure to check your income, statement status, and contribution level using the information in this article to see if you qualify for the savings credit.

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