The Internal Revenue Service (IRS) recently announced changes to the Saver’s Credit program, which was established to encourage low- and moderate-income taxpayers to save for retirement.
By providing potential federal income tax credits to these employees, the program encourages more non-highly compensated employees to defer into their retirement plans. The tax credit ranges from 10 to 50 percent of each dollar an employee contributes. Some employees may qualify for the Saver’s Credit if they are deferring based on their individual and/or household income (see chart below).
Tax Credit for Different Income Levels
Adjusted Gross Income
|Credit||Single Filers||Head of Household||Joint Filers|
|50% of Contribution||0 – $17,750||0 – $26,625||0 – $35,500|
|20% of Contribution||$17,751 – $19,250||$26,626 – $28,875||$35,001 – $38,500|
|10% of Contribution||$19,251 – $29,500||$28,876 – $44,250||$38,501 – $59,000|
|Credit not available||More than $29,500||More than $44,250||More than $59,000|
To qualify for the Saver’s Credit, a participant must be:
- 18 years of age or older
- Not a full-time student
- Not claimed as a dependent on someone else’s return
In addition, they must meet one of the following financial criteria:
- File taxes individually with an income of $29,500 or less
- File taxes as head of household and have income of $44,250 or less
- File taxes jointly with an income of $59,000 or less
As employees will be filing their 2012 tax returns soon, now is the ideal time to remind them of this valuable benefit. Communicating the existence of the Saver’s Credit program could greatly increase the participation rate of low- and moderate-income employees in saving for their retirement.
For questions about qualifying for this program, please refer to IRS Form 8880.