The Savers Tax Credit reduces or eliminates the income tax a taxpayer may owe. This also encourages people to contribute to retirement plans or an IRA. A taxpayer can receive a tax credit of up to 50 percent of a maximum annual $2,000 contribution.
For example, if a taxpayer makes a $1,000 contribution to their employer’s retirement plan, their taxable income is reduced by $1,000. They may also claim up to a $500 credit.
Who is eligible?
The taxpayer must be at least 18 years old, not be a full time student and can not be claimed as a dependent on someone else’s tax return.
The income limitations for tax year 2012 are as follows:
The adjusted gross income must be not higher than
$57,500 if married filing jointly
$43,125 if filing as head of household or
$28,750 if filing single or married filing separately.
If you fit within these income limitations and the other eligibility criteria, don’t forget to claim this on your tax return. Generally, only taxable earned income is counted in figuring the Earned Income Credit (EIC). If your income is in the upper ranges of the EIC eligibility, salary deductions made for retirement reduce taxable income making you eligible for a larger EIC benefit.
If you are not contributing to a plan, this is another reason to start. And if you find you owe taxes for the past year, you can still open a retirement savings account prior to the April filing due date, and get the credit that lowers or possibly eliminates your tax bill. The money will be yours to keep.