A recent notice issued by the IRS reminds low- and moderate-income workers that by taking steps now to save for retirement, they may be eligible for a special tax credit in 2012.
The retirement savings contributions credit helps offset part of the first $2,000 that workers voluntarily contribute to IRAs, 401(k) and 403(b) plans, and other workplace retirement programs.
Eligible workers still have time to set up and make qualifying retirement contributions to an IRA and get the saver's credit on their 2012 tax return. The deadline for such contributions is April 15, 2013. In contrast, the credit for elective deferrals made after December 31, 2012, to other workplace retirement plans must be claimed on the taxpayer's 2013 tax return. If you missed the opportunity to claim the credit for 2012, now is a good time to ask your employer to start withholding contributions for 2013.
The income limits for the retirement savings contributions credit vary based on filing status. The following categories are eligible to claim the credit:
Married couples filing jointly with incomes up to $57,500 in 2012 or $59,000 in 2013;
Heads of Household with incomes up to $43,125 in 2012 or $44,250 in 2013; and
Married individuals filing separately and singles with incomes up to $28,750 in 2012 or $29,500 in 2013.
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. IRS Form 8880 is used to claim the saver's credit, and its instructions have details on figuring the credit correctly.