You can get paid for saving your own money! That doesn’t sound right, but it’s true. It’s called the Saver’s Tax Credit. If you’re a healthcare low to mid-income worker such as a medical practice office, you may qualify for this tax credit. Continue reading to find out how.
What is The Saver’s Tax Credit?
The Saver’s Tax Credit is a non-refundable tax credit that you can get when you save money towards your retirement in your 401(k) or IRA. It is a percentage of the amount you put into your retirement savings that will be credited to your tax bill.
To be clear, you don’t actually get a check, because it’s non-refundable. Instead, the saver’s credit is used to offset tax you may owe. So, if you don’t owe any taxes, the saver’s tax credit you gain remains unused.
Saver’s Tax Credit Vs. Tax Deductions
If you’re wondering if the saver’s credit differs from tax deductions, the answer is YES. The saver’s tax credit allows you to subtract directly from the income tax you owe, while a tax deduction lowers the amount of your income that can be taxed.
Which is better? Both are good and can be utilized when you qualify. Generally, the saver’s tax credit seems better for low and mid-income workers in a medical practice office. Although depending on your situation, you may utilize both the tax credit and tax deduction.
Who Qualifies for Saver’s Tax Credit?
Generally, the saver’s tax credit is for low and mid-income workers in the U.S. However, you’ll have to qualify. Here are the qualification requirements for the saver’s tax credit:
- Be old enough to file a tax return. That is, 18 or older.
- File your tax return independently or jointly, not as a dependent.
- Not a full-time student.
- Your adjusted gross income must not exceed a certain threshold.
- for married filing jointly, not more than $66,000
- for heads of households, not more than $49,500
- for single filers, not more than $33,000
How To Claim The Saver’s Tax Credit
Here are the steps to claim your saver’s tax credit if you qualify.
Step #1: Open a Retirement Savings Account
You’ll need a retirement funds account. You can open an Individual Retirement Account (IRA), or use your workplace retirement fund account, 401(k), if you already have one.
Step #2: Save for Retirement
The Saver’s Tax Credit involves saving money for retirement. So you need to make a deposit into your retirement account or contribute to your 401(k).
Step #3: File Form 8880
Download the Credit for Qualified Retirement Savings Contributions form, also known as Form 8880. Then, fill in your details and file the form with the IRS.
Is the Saver’s Credit Worth It?
You may wonder if the money you’ll get is worth applying for the saver’s credit. Well, you can claim 10%, 20% or 50% of your retirement savings. But the amount can’t exceed $1,000 for individuals and $2,000 for joint filers.
However, your saver’s tax credit worth depends on your adjusted gross income (AGI) level. And, the percentage you can claim decreases as your income increases. Say you save $1,000 in your retirement account; you’ll get a $500 tax credit if your income is within the 50% level, and $100 if it’s within the 10% income level.
|Filing Status||Claim 50%||Claim 20%||Claim 10%|
|Single filers||AGI of $19,750 or below||AGI of $19,751 – $21,500||AGI of $21,501 – $33,000|
|Married, filing jointly||AGI of $39,500 or below||AGI of $39,501 – $43,000||AGI of $43,001 – $66,000|
|Head of household||AGI of $29,625 or below||AGI of $29,626 – $32,250||AGI of $32,251 – $49,500|
Disclaimer: RMK Inc. is not a CPA, financial advisor or other financial tax professional, so this is not financial advice. Make sure you consult your tax professional before taking any action.