How to Claim the Saver’s Tax Credit
Tax credits help lower money owed to the Internal Revenue Service (IRS). The retirement savings contribution credit is one of several tax credits that enable tax payers to reduce their taxes via contributions to retirement accounts such as Individual Retirement Accounts (IRAs) and 401k accounts.
Being properly aware of what tax credits you qualify for is essential to keeping your taxes to a minimum in addition to accurately recording financial activities to the IRS. The retirement savings contribution credit is the governments way of helping tax filers prepare for retirement while also benefitting in the near term through tax breaks.
Regulation of the retirement savings contribution tax credit is set forth in Section 25B of the Internal Revenue Code (IRC). The credit and the IRC are governed by The Job Creation and Woker Assistance Act of 2002 also known as Publication L. 107-147 Statutory details regarding the retirement contribution tax credit are outlined within Title 26, Subtitle A, Chapter 1, Sub-chapter A, Part IV, Sub-part A, Section 25B of the U.S. Code.
To determine whether or not you qualify for the savings tax credit review the Internal Revenue Service (IRS) Form 8880. This form provides information on who can use the credit in terms of which types of savings accounts qualify, income limitations, and filing status.
Gather financial documents
Knowing how much credit to take, and justifying the credit to the IRS requires proper documentation of the qualifying retirement contribution. The IRS Form 5498 is a document used to record and report retirement contributions to the IRS and contributor(s).
Complete IRS Form 8880
IRS Form 8880 is the means by which you demonstrate your intent to claim the retirement savings contributions credit. This form includes savings conributions amounts for both single and married tax filers. Early distributions from retirement savings may reduce the amount of tax credit claimed.
Record credit on 1040
Once the IRS Form 8880 is complete the tax credit due should be on the last line of the form. This value is transferred over to the applicable IRS Form 1040. Since there are different Form 1040’s and they can change from year to year, the line on which the retirement contribution tax credit is reported varies.