A tax credit is a dollar-for-dollar reduction in the amount of federal income tax that you are required to pay. Tax credits are typically better than tax deductions because of this direct reduction. Example: Tax liability is $1,400 and you have a $500 tax credit. Your liability is reduced to $900. Depending on the situation, this could lead to a larger refund or reduction in the amount you need to send to the Treasury at tax time.
Saver’s Tax Credit: If you make contributions to an employer-sponsored retirement plan or an Individual Retirement Account (IRA) you may be eligible for the Saver’s Credit.
Saver’s Credit Eligibility Requirements:
- Age 18 or older
- Not a full-time student
- Not claimed as someone’s dependent
2024 Adjusted Gross Income Limits:
- Single Filers: $36,500
- Married Filing Jointly: $73,000
- Head of Household: $54,750
The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions. The maximum amount for the credit is $2,000 for single individuals and $4,000 for married couples filing a joint return.
The percentage applied depends on your adjusted gross income. You can find a table which shows the amount of the credit for different income levels on the IRS web site www.irs.gov in the Saver’s Credit section.
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