This secret tax credit for savers becomes more attractive in 2021
If you can’t take advantage of all the glamorous tax breaks the richest 1% get, don’t worry. There are tax benefits for everyone, including the savings loan for people with low and moderate income. This hidden gem can put up to $ 1,000 or $ 2,000 back in your pockets in 2021.
The secret of the saver is revealed
Saving for retirement is a distant dream for many. That’s why the IRS rewards people who save money in a Qualified Employer’s Retirement Plan, IRA, or ABLE Account by offering the Retirement Savings Contribution Credit – a reduction of one dollar. for a dollar in income taxes you owe now as you save to fund freedom in your golden years. Your adjusted gross income (AGI) will determine whether you can release the savings loan during the 2021 tax year, the one for which your return is due by April 2022.
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Good news: 2021 income limits have increased for savings credit! This means that more people may be eligible for the credit. If you are married and filing jointly, your AGI must be $ 66,000 or less (compared to $ 65,000 in 2020); head of the family declaring with an AGI of $ 49,500 or less (compared to $ 48,750 in 2020); and all other filers with an AGI of $ 33,000 or less (up from $ 32,500 in 2020).
You may already be contributing to a qualifying retirement savings account and not receiving credit for it. Here is a list of some of the most common types of contributions eligible for savings credit:
Take credit where credit is due
Credits are the holy grail of tax returns – the more credits you get, the less taxes you owe. Some credits are refundable, allowing you to walk away with a tax refund if your credits exceed the taxes you owe. The savings credit, however, is a non-refundable credit, which means it can only reduce your tax bill to zero.
Taxpayers are entitled to a 50%, 20% or 10% credit rate for contributions to the retirement account based on eligible contributions made, deposit status and earned income. A single person can make a maximum contribution amount of up to $ 2,000, and a married couple filing jointly can make up to $ 4,000 in eligible contributions. You can always contribute more to your retirement accounts (up to the absolute maximum contribution limits), but the maximum credit you may be entitled to on your tax returns is $ 1,000 (single tax filers) or $ 2,000 (married spouses).
2021 savings loan rate and AGI eligibility by deposit status
|
Credit |
Married spouse filing (IAG) |
Head of household (IAG) |
All other reporters (IAG) |
|---|---|---|---|
|
50% of your contribution |
$ 0 to $ 39,500 |
$ 0 to $ 29,625 |
$ 0 to $ 19,750 |
|
20% of your contribution |
$ 39,501 to $ 43,000 |
$ 29,626 to $ 32,250 |
$ 19,751 to $ 21,500 |
|
10% of your contribution |
$ 43,001 to $ 66,000 |
$ 32,251 to $ 49,500 |
$ 21,501 to $ 33,000 |
|
Unavailable |
Over $ 66,000 |
Over $ 49,500 |
Over $ 33,000 |
Data source: IRS.
Now you know
Don’t let good credit go to waste. The savings loan is a valuable government incentive that the majority of U.S. taxpayers (62%) have no idea about, according to the Transamerica Center for Retirement Studies. Anyone 18 years of age or older who is not a full-time student or who is dependent on another person’s tax return can apply for the credit.
If you qualify, start putting extra money into a retirement account and get rewarded for your investments in your favorite businesses. The big secret that makes savings credit so appealing are the long-term benefits – an annual credit of $ 2,000 for a married couple who make total contributions of $ 180,000 over three decades can translate into more than $ 2,000. $ 60,000 in credits! This means that a couple actually contributed $ 120,000 to their retirement accounts, receiving thousands of dollars in free government money to live their best life later!