Low Income? You May Qualify For Tax Saver's Credit

If you’re single and earned less than 26,000 last year, or married and together made less than $52,000, then you can qualify for a tax credit of up to $1000 if you contributed to a retirement savings account during the year. To get the maximum credit, you’ll need to have socked away $2,000 and earned less than $15,500 as a single tax filer ($31,000 if married). And yes, this is a credit, not a deduction (something this writer has confused in the past), so it can make a significant difference on your final tax bill.

If you’ve earned too much in 2007 to qualify but had some lean years prior to that, there’s still time to claim the credit:

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.

“Qualifying for the Tax Saver’s Credit” [Kiplinger]
(Photo: david.nikonvscanon)

Comments

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  1. Sherryness says:

    OOooh, I love the retroactive “gotcha!” Thanks. :)

  2. cde says:

    0 taxes here i come.

  3. Bladefist says:

    I love it when people who don’t pay into the system get money out of it. Nothing motivates an individual to do well like free money.

  4. jasonkeiderling says:

    This can be a very useful deduction. The great part about it is, your contribution to a 401(k) or traditional IRA gets deducted BEFORE you get assigned into an income class. Basically, if you can get your income down to $15,490 by contributing to an IRA, 401(k), or both, you will probably owe NO federal taxes that year. If you can get your income down to $25,990 you will save big on your taxes.

  5. I wonder if the contribution actually had to be made during the calender year 2007. The “normal” rules allow IRA contributions for the previous tax year to be made as late as April 14 of the next year…

  6. nequam says:

    @jasonkeiderling: Looks like the incentive here is to get low income people to save for retirement. Oh the horror!!!

  7. nequam says:

    @jasonkeiderling: Oops! I meant to respond to bladefist.

  8. karmaghost says:

    If you made less than $15,000 and managed to put $2000 in a retirement fund “WOW” is all I have to say to that.

  9. pieoncar says:

    If you were a student for at least 5 months last year, you automatically don’t qualify. I was REALLY excited about this credit until I found out I was disqualified for being a student :(

  10. theblackdog says:

    Damn, I don’t qualify for this credit…but my contributions to my retirement are untaxed anyway.

  11. philaiv says:

    @bladefist: You obviously don’t understand what a tax “credit” is. If someone doesn’t pay any money to the IRS and then files form 8880 the IRS isn’t going to send them any money. Hence, this isn’t the same as the Earned Income Tax Credit where someone can actually profit off the IRS.

  12. Amelie says:

    @bladefist
    Yes, because working at a low paying service job isn’t contributing to society. The tax breaks would be better spent on lowering the rates of hedge fund owners from their current 20%.

  13. JasonKeiderling says:

    @Serenefengshui:

    The normal rule applies. This is very useful, because if you just miss an income bracket you can put a few bucks into an IRA to make up for it. I should also mention that charitable donations and stock market losses of up to $1000 per year also get deducted before your income class is determined.

  14. JasonKeiderling says:

    @karmaghost:
    Technically, you would be able to make $17,000 and put $2000 into retirement savings for this to work. That’s not insanely hard if you save that $2000 through a 401(k) which means it’s 2000 pretax dollars you’d have to save (meaning you’d only lose about $20-25 per week). The second year this saver’s tax credit was out I managed to have zero federal tax due thanks to this credit.

  15. teh says:

    Note: You can’t get the credit if you are a student.

  16. Scuba Steve says:

    I made 10k this year. Only because I didn’t work until October.

    I had a lot of expendable income, and I could very easily have put $2000 dollars in a retirement account.

    But, like most recent college grads, I spent the money on buying a new car and getting furniture for my apartment.

  17. landsnark says:

    @ZOUXOU – exactly – anyone would would say that someone making less than $15,500 a year “isn’t pay into the system” has obviously not worked in that tax bracket for quiet a while. This people (myself included, until recently) pay all kinds of regressive taxes like sales tax, car tax and, let’s face it, social security/FICA. But when the tax code cuts them a little break, someone inevitably carps about them “not paying into the sysytem”. In term of equity of burden, these people pay *more*, not less per capita than the upper tax brackets.

  18. Kloud says:

    @Scuba Steve: $10000 in 2 months and just recently graduated from college? What were you doing, selling drugs?

  19. fizzyg says:

    @pieoncar: Same here…I finished graduate school and started my ‘career’ job, so I’m not allowed to take this credit. :p

  20. Leah says:

    @Kloud: $3k a month is plenty reasonable for a recent college grad if he’s an investment banker or in some sort of business. Maybe even engineering if he was a super stellar student with interning experience and an in-demand field.

  21. Rectilinear Propagation says:

    @fizzyg & @teh: You can’t get it if you were a full-time student.

  22. Rectilinear Propagation says:

    Did y’all have an article for this last year? If so, I surely missed it.

    Thanks for the heads up.

  23. hardcle says:

    How did I not know about this before?! I just saved $150! Thanks!

  24. rhombopteryx says:

    @JasonKeiderling:
    You could take advantage of it because you have one of the ~ 6 jobs out there in the whole US that actually provides a 401k for their low-wage workers. How many people making less than $20k have access to a 401k plan?

    Let’s face it – this credit is lipstick on a pig, it’s something all of like 200 people can claim. Congress and the Administration passed it so they can say “look, we’re helping the low-income earners save for retirement” and at the same time neutered the credit so much that it has a negligible impact on the deficit.

    It’s just another instance of passing a bill that prohibits rich and poor alike from sleeping under bridges…

  25. obgolfer says:

    In response to those who think it is hard to make a $2000 contribution to a retirement account on $15500 AGI consider this. AGI $15500, contribute $2000 to Roth IRA, file taxes claiming the credit which while it could be up to $1000 is probably only about $750 because that is all the taxes you paid. Then a couple days after you file withdraw the $2000 from your Roth IRA. You can withdraw the principal without penalty any time. You probably have to pay a $10 fee to set up the Roth but for that you get $750 and you just tied up $2000 for a couple days. Similar but better for couples. If anyone knows of a reason this will not work say something.