Low-income earners should see if they are eligible to apply for a saver's tax credit when they file their 2013 taxes. The credit is based on a person or couple's adjusted gross income and how much they set aside in an employer-based retirement plan or IRA.
Individuals who make less than $29,500 of adjusted gross income or couples who make $59,000 and file jointly are eligible to apply.
Individuals can take a credit up to $1,000 and married couples can take a credit of $2,000 if they made eligible contributions to either a 401(k) plan or an IRA.
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The lower one's income the higher the credit. Individuals who make less than $17,750 can earn a 50 percent credit. Those who earn between $17,751 and $19,250 annually can receive a 20 percent credit. Those who make as much as $29,500 can receive a 10 percent credit.
The IRS used this example to explain how the saver's credit works. Jill, who works at a retail store earned $30,000 in 2013. Her spouse was unemployed. She contributed $1,000 to an IRA for the year. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $29,000. She may claim a 50 percent credit, or $500, for her $1,000 IRA contribution.
About $1 billion in saver's tax credits were provided to more than 6 million Americans in the 2010 tax year, according to the Center for Retirement Research at Boston College. Single taxpayers claimed an average $122 in credits and the credits averaged $204 for couples and $165 for heads of household.
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