Did you know that just a quarter of U.S. employees with annual household incomes $50,000 or less are aware of the nine-year-old tax code provision called the Saver’s Credit? This credit helps to offset the first $2,000 they contribute to their employer-sponsored retirement plan, including 401(k), 403(b), 457 and Thrift Savings plans.
Meant to be an incentive for low- to moderate-income individuals/households to save for their retirement through their workplace plan, the Saver’s Credit can increase a taxpayer’s refund or reduce the tax owed – just like other tax credits.
Who is Eligible?
Generally, the Saver’s Credit can be claimed by eligible taxpayers at least 18 years of age. Then, the following tax filing statuses and income levels qualify:
- Married couples filing jointly with 2014 incomes of up to $60,000 (2015 will be $61,000).
- Heads of household with maximum 2014 incomes of $45,000 (2015 increases to $45,750).
- Singles and married individuals filing separately with 2014 incomes of up to $30,000 (2015 slightly grows to $30,500).
Who is Not Eligible?
- Anyone claimed as a dependent on someone else’s tax return cannot take the credit.
- A student cannot take the credit (anyone enrolled as a full-time student during any part of five calendar months during the year is considered a student).
How Much Can it Mean for an Employee?
According to SHRM.org, Saver’s Credits totaling $1.2 billion+ were claimed on nearly 6.9 million individual income tax returns in 2012, the most recent tax year for which complete figures are available.
Saver’s Credits claimed on these returns averaged:
- $215 for joint filers,
- $165 for heads of household, and
- $127 for single filers.
What to Encourage Your Employees to Do:
Workers who were unable to set aside money for 2014 may want to schedule their 2015 contributions soon so their employer can begin withholding them.
It’s Not Too Late
For tax year 2014, eligible workers have until April 15, 2015, to set up a new IRA or add money to an existing one.
However, elective deferrals (contributions) must have been 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.
They should use IRS Form 8880 to determine the rate and amount of their credit. They will then need to enter that amount on Form 1040, Form 1040A, U.S. Individual Income Tax Return, or on Form 1040NR, U.S. Nonresident Alien Income Tax Return. They cannot use Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, to claim this credit.
If they would like additional information as outlined by the IRS, you can refer them to IRS publication 590-A.
If you would like to help your employees ensure that they take advantage of this credit, Spitfire can help you tailor your message and even build a targeted distribution for those employees. Contact us here for more information.