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The Savings Credit
For many of us, saving money is a difficult task. After paying all the bills, it can be hard to find some extra cash to put away. But, now the government is offering a little incentive to put money aside. It's called the Saver's Credit.
How it Works
If you make contributions to an employer-sponsored retirement plan, a 401(k) or an individual retirement account (IRA), you may be able to take a credit on your taxes. The amount of that credit is based on the contributions you make (no more than $2000 per taxpayer) and your credit rate. Your credit rate can be as low as 10% or as high as 50% depending on your adjusted gross income and your filing status.
For example, if you're married, filing jointly, and earn less than $30,000, your credit rate is 50%. So, if you contribute $2,000, you'll get a $1,000 credit on your taxes. On the other hand, if you're single and earn $17,000, your credit rate is 10%. That means, if you contribute $2,000, you'll get a $200 credit. To find out how big a credit you may be eligible for, click here.
The Saver's Credit is more beneficial than your typical deduction. A tax deduction is a reduction in your income. It reduces the amount of your income that's subject to tax. A tax credit, on the other hand, is a dollar for dollar reduction of your actual income tax."
Claiming the Credit
However, not everyone can claim the saver's credit. You do NOT qualify if:
You are under age 18.
You are a full-time student.
Someone else, like your parents, claims an exemption for you on their tax return.
Your adjusted gross income is more than: >>$50,000 if you're married and filing jointly. >>$37,500 if your filing status is head of household. >>$25,000 if your filing status is either single, married filing separately, or qualifying widow(er).
The Saver's Credit is a temporary tax credit that is available 2002 through 2006.
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