Taxpayers still have time to reduce their tax bill for the current year through the Saver’s Credit intended to help qualified low-and moderate-income savers.
Up to $2,000 Credit can be received through Saver’s Credit. (Photo: Bankrate)
Saver’s Credit
The Saver’s Credit is a little-known tax benefit that allows qualified low- and moderate-income savers to receive a credit worth up to $1,000 if filing single and $2,000 if married and filing jointly. The credit can be applied to your tax bill and can only drop your tax bill to zero, it won’t result in a tax refund.
In a published article in The Motley Fool, to qualify for the Saver’s Credit, one needs to contribute to a qualifying retirement account, such as a Roth IRA. The Roth IRA is a retirement account funded with after-tax dollars.
Contributions made to the Roth IRA can only be withdrawn tax-free when the account holder is 59 1/2 years old and has met the five-year rule. Roth IRAs do not require holders to withdraw money at any particular age, unlike traditional IRAs
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Eligibility for the Saver’s Credit
To be eligible for the Saver’s Credit, you must be at least 18 years old and not claimed as a dependent on someone else’s tax return. Also, you cannot be a student. The amount of credit you receive depends on your filing status and adjusted gross income (AGI) for the year. The Saver’s Credit offers three categories of credits, 50%, 20%, and 10%, and the maximum credit amount that you can receive is determined by your filing status and AGI.
Married couples filing jointly with a combined AGI of $40,000 and who contribute $2,000 to a Roth IRA can claim a 50% credit of $1,000 for their $2,000 IRA contribution on their 2022 tax return. Taxpayers who are considering contributing money to a Roth IRA have until the tax deadline to decide. For 2022, the maximum contribution limit to a Roth IRA is $6,000 for those under 50 years old and $7,000 for those who are 50 and over, according to Smart Asset.
The Saver’s Credit is a great way for taxpayers to save money on their tax bills, and they should not miss the opportunity to receive it. Although the credit is not well-known, taxpayers can take advantage of it by contributing to a qualifying retirement account, such as a Roth IRA, and by checking to see if they qualify for the credit.
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