WASHINGTON — Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2012 and the years ahead, according to the Internal Revenue Service.
The saver's credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver's credit is available in addition to any other tax savings that apply.
Eligible workers still have time to make qualifying retirement contributions and get the saver's credit on their 2012 tax return. People have until April 15, 2013, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2012. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2013 contributions soon so their employer can begin withholding them in January.
The saver's credit can be claimed by:
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.
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. Form 8880 is used to claim the saver's credit, and its instructions have details on figuring the credit correctly.
In tax-year 2010, the most recent year for which complete figures are available, saver's credits totaling just over $1 billion were claimed on more than 6.1 million individual income tax returns. Saver's credits claimed on these returns averaged $204 for joint filers, $165 for heads of household and $122 for single filers.
The saver's credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.
Other special rules that apply to the saver's credit include the following:
Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2012, this rule applies to distributions received after 2009 and before the due date, including extensions, of the 2012 return. Form 8880 and its instructions have details on making this computation.
Begun in 2002 as a temporary provision, the saver's credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on IRS.gov.
Both TaxACT Free Federal and Deluxe Editions include step-by-step guidance and Form 8880 for the Saver's Credit. Start your TaxACT return now risk free.
November 2 — Social security, Medicare, and withheld income tax.
File Form 941 for the third quarter of 2015. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter timely, properly, and in full, you have until November 10 to file the return.
November 2 — Certain small employers
Deposit any undeposited tax if your tax liability is $2,500 or more for 2015 but less than $2,500 for the third quarter.
November 2 — Federal unemployment tax
Deposit the tax owed through September if more than $500.
November 2 — Form 720 taxes.
File Form 720 for the third quarter of 2015.
November 2 — Wagering tax
File Form 730 and pay the tax on wagers accepted during September.
November 2 — Heavy highway vehicle tax
File Form 2290 and pay the tax for vehicles first used in September.
November 10 — Employees who work for tips
If you received $20 or more in tips during October, report them to your employer - Details
November 10 — Social security, Medicare, and withheld income tax.
File Form 941 for the third quarter of 2015. This due date applies only if you deposited the tax for the quarter timely, properly, and in full.
November 11 — Everyone
Federal Holiday (Veterans Day) - Details
November 12 — Communications and air transportation taxes under the alternative method.
Deposit the tax included in amounts billed or tickets sold during the first 15 days of October.
November 13 — Regular method taxes
Deposit the tax for the last 16 days of October.
November 16 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in October. Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in October.
November 25 — Communications and air transportation taxes under the alternative method.
Deposit the tax included in amounts billed or tickets sold during the last 16 days of October.
November 27 — Everyone
Federal Holiday (Thanksgiving Day) - Details
November 27 — Regular method taxes
Deposit the tax for the first 15 days of November.
November 30 — Wagering tax
File Form 730 and pay the tax on wagers accepted during October.
November 30 — Heavy highway vehicle use tax
File Form 2290 and pay the tax for vehicles first used in October.