What do I need to do to qualify for the savers' tax credit?
All you need to do to qualify for this valuable tax break is to contribute to a retirement-savings plan and earn less than a certain amount.
This frequently overlooked tax credit can trim your tax bill by up to $1,000 per person as a reward for contributing to an IRA, 401(k) or other tax-favored retirement plan. The credit is available to married couples whose adjusted gross income was less than $52,000 in 2007 and singles whose AGI was under $26,000.
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You'll get the maximum credit if you contributed at least $2,000 to a retirement plan and your AGI was less than $31,000 if married, or $15,500 if single.
This tax break can be a great deal for young workers just starting out, who contribute even just a little bit to their 401(k)s, or anyone who earns within the income limits. Children under age 18 and full-time students, however, do not qualify.
This is a tax credit, which is much more valuable than a tax deduction. A tax deduction lowers your taxable income -- so a $1,000 deduction would lower your tax bill by $250 if you're in the 25% tax bracket. But a $1,000 tax credit lowers your tax bill by a full $1,000.
Use IRS Form 8880 to claim the credit and for help with the calculations. Also see the savers' tax credit bulletin from the IRS and Publication 590, Individual Retirement Arrangements.
You still have until April 15, 2008, to contribute to an IRA for 2007 and qualify for the credit.
For more tax breaks, see The 13 Most Overlooked Tax Deductions.
If you discover that you've missed any of these tax breaks in past, you can file an amended return to retroactively claim your savings and get an extra refund. You have up to three years after the original due date of your return to file an amended return -- use Form 1040X. For more information see the Instructions for Form 1040x and Amending Your Tax Return.
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