The Little-Known Savers’ Tax Credit

There is a federal tax break for workers that could help them with their retirement savings, but companies are not doing enough to educate employees about it, according to Workforce Management.

It is the Savers Credit, a tax credit of up to $2,000 for low and middle income workers who pay into any kind of retirement plan. If you qualify, you can also get the credit by putting money into an Individual Retirement Account.

The credit was started in 2002 and is administered by the Internal Revenue Service. Although it is not part of regular company retirement plans, workers should be informed about the credit because it can help for their retirement savings. If workers do not take advantage of the program, they are leaving money on the table, according to benefits experts.

The program has been set up for low and moderate income workers because they generally save less for their retirement. Studies have shown that workers making less than $30,000 a year put less than five percent of their pay before taxes into a retirement account in 2010, compared to more than eight percent by people who make more than $75,000 a year.

In 2009, more than six million people claimed more than $1 billion on the Savers Credit. The average credit for households filing jointly was $202, for those filing as head of household it as $159, and for those filing as a single person $121.

In order to qualify for the credit, workers must be at least 18 years old and cannot be a student for more than five months of the year. If a person files for the credit, he or she must also file a federal income tax return and he or she cannot claim themselves as a dependent on anyone else’s return.

To claim the credit, if you are filing jointly, your income cannot be more than $57,500; if filing as a head of household, no more than $43,125; and if filing as a single person, no more than $28,750.

Certain health care benefits options and other contributions before taxes may lower an employee’s adjusted gross income enough that they qualify for the credit, according to some benefits advisers.

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