Believe it or not, even though 2015 has come and gone, it’s not too late to allocate your money in ways that will reduce your tax burden for the 2015 tax year. One way to reduce your tax burden is by claiming the Saver’s Credit, which reduces your tax liability, or how much you owe the IRS. Before you file for 2015, make sure you’re using your retirement savings to its fullest potential.
The Saver’s Credit
The Saver’s Credit is for low- to middle-income households who save for retirement. You may save in a 401(k) or other employer-sponsored plan, or you may save in an IRA or myRA. For the first $2,000 you save, you can get a chunk back as a credit on your taxes that lowers your tax liability.
Married couples filing jointly with an adjusted gross income no greater than $36,500 may be able to get 50% of their contributions to count against their tax burden up to $1,000. Your adjusted gross income is not how much you make collectively on your W-2s, but how much your household netted after accounting for costs like educator expenses, HSA deductions, tuition and fees, and other costs that reduce your gross income. (These can be found on lines 23-36 of this year’s 1040.) If you are married filing jointly and bring in between $36,500 and $39,500, you may be able to claim 20%, or up to $400. For those with adjusted gross incomes between $39,500 and $61,000, you may be able to claim up to $200, or 10%. Those with adjusted gross incomes higher than $61,000 can’t claim the credit.
The numbers for those filing as head of household are as follows:
AGI at or below $27,375- 50% or up to $1,000
AGI between $27,375-$29,625- 20% or up to $400
AGI between $29,625-$45,750- 10% or up to $200
And for those who are single or married filing separately:
AGI at or below $18,250- 50% or up to $1,000
AGI between $18,250-$19,750- 20% or up to $400
AGI between $19,750-$30,500- 10% or up to $200
Didn’t stash away two grand? Not to worry. You can still make contributions to your retirement account through April 18, 2016 and have them marked for 2015. That way you don’t miss out on the full tax credit if you’re eligible. If you choose to do this, be sure to contact your human resources department if your account is held through work, or the financial institution that manages your account if you hold it independent of your employer. That way you can get more information on how to properly mark these contributions for the 2015 tax year.
Tell Me More
To find more information on how and if you qualify for this credit, you can check out IRS Form 8880 to see if it’s even worth the extra effort. If looking over your own tax documents makes you squeamish, you can take it to a business to do it for you, like H&R Block. Many businesses and accountants will charge you by the form, but it can be worth it to have some level of assurance that your taxes are filed properly.