To Claim the Credit for Qualified Retirement Savings Contributions, Fill Out IRS Form 8880.
If you make qualified contributions to your IRA or employer-sponsored retirement plan, you may be entitled to claim a tax credit on your income tax return. Additionally, beginning in 2018, if you are the intended beneficiary, you may be eligible to receive a tax credit for contributions made to your Achieving a Better Life Experience (ABLE) account, if you meet certain requirements.
Who’s Eligible for the Credit?
You are qualified for the credit If you meet the following criteria:
- If you are 18 years old or older,
- Not listed as a dependent on someone else’s tax return, and not declared as a student.
- If you did any of the following during any part of the first five calendar months of the tax year, you were considered a student:
- Are enrolled as a full-time students at a college or university
- A full-time, on-farm training course offered by a school or an agency of the state, county, or municipal government was completed.
- Technical, trade and mechanical schools are all included in the definition of a school. On-the-job training courses, correspondence schools, and schools that only offer courses online are not included in this category.
Amount of the Credit
You can deduct contributions to a traditional or Roth IRA, elective salary deferral contributions to a 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan, voluntary after-tax employee contributions made to a qualified retirement plan (including the federal Thrift Savings Plan) or 403(b) plan, and voluntary after-tax employee contributions made to a qualified retirement plan (including the federal Thrift Savings Plan).
Contributions to a 501(c)(18)(D) plan, or other similar arrangements
You are the specified recipient of contributions made to an ABLE account for which you are the designated beneficiary (beginning in 2018).
Contributions made as part of a rollover are not eligible for the credit. Additionally, any recent payouts from a retirement plan or IRA, as well as distributions from an ABLE account, may have a negative impact on your qualifying contributions.
The maximum contribution amount that may qualify for the credit is $2,000 ($4,000 if married filing jointly), with the maximum credit amount being $1,000 ($2,000 if married filing jointly). The maximum credit amount is $1,000 ($2,000 if married filing jointly). Calculate your credit by referring to the chart below.
As an illustration, Jill, who works in a retail business and is married, will earn $41,000 in 2021. In the year 2021, Jill’s husband was out of work and had no source of income. Jill made a $2,000 contribution to her IRA for the year 2021. She has $39,000 in adjusted gross income after subtracting her IRA contribution, which she reports on her joint tax return. Jill will be able to claim a $1,000 tax credit on her 2021 tax return for her $2,000 IRA contribution, which is equal to half of the credit.
Getting Form 8880 Ready
Form 8880 must be submitted with your tax return along with Form 1040, Form 1040-SR, or Form 1040-NR. Taxpayers must declare their adjusted gross incomes (AGIs) as well as the total amount of their contributions to a specific eligible plan in order to complete the form. Depending on the AGI, credits can be worth anywhere from 10 percent to 50 percent of the total. Individuals can claim a maximum credit of $2,000 for IRA contributions, while married couples filing jointly can claim a credit of $4,000 for IRA contributions.
Take a Look at the Following Breakdowns for Tax Filers as of the Year 2022:
Married taxpayers filing jointly who make contributions to a qualified retirement plan or an ABLE account may be eligible for a credit equal to 50 percent of their contributions if their total AGI is $39,500 or less. Heads of households who have AGIs of $29,625 or less may be eligible for a 50 percent credit on their taxes.
Additionally, single filers who have AGIs of $19,750 or less may be eligible for the 50 percent credit. (The limit for married taxpayers in 2022 is $41,000, the limit for heads of household is $30,750, and the limit for single filers is $20,500.)
If a married couple’s combined AGI falls between $39,501 and $43,000 (raising to a range of $41,001- $44,000 in 2022), they may be eligible for a credit equal to 20 percent of their contributions to a qualifying plan or ABLE account (with the amount increasing to 20 percent in 2022).
Heads of households who earn between $29,626 and $32,250 in adjusted gross income (or between $30,751 and $33,000 in 2022) are eligible for a 20 percent credit. Additionally, single filers who have AGIs between $19,751 and $21,500 (or between $20,501 and $22,000 in 2022) may be eligible for the 20 percent credit.
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Couples filing jointly who make contributions to a qualified plan or an ABLE account may be eligible for a credit equal to 10 percent of their contributions if their combined AGI falls between $43,001 and $66,000 (or $44,001 and $68,000 in 2022) and their combined AGI falls between $44,001 and $68,000. Heads of families who earn between $32,251 and $49,500 in adjusted gross income (or between $33,001 and $51,000 in 2022) may be eligible for a 10 percent credit. Additionally, single filers who have AGIs between $21,501 and $33,000 (or between $22,001 and $34,000 in 2022) may be eligible for the 10 percent credit.
As a result of the aforementioned information, a single taxpayer with an income of $19,500 and IRA contributions of $2,000 may be eligible to claim 50 percent of the $2,000, which amounts to $1,000. Important to remember is that rollover contributions are not eligible for this program. Furthermore, distributions from a qualified plan may result in a reduction in the amount of credit that can be claimed.
How to File IRS Form 8880
Form 8880 can be filed by printing out a copy of the form, filling it out, and mailing it to the Internal Revenue Service. To file your taxes electronically, you can complete Form 8880, which can be found on the IRS’s website. In the event that you’re utilizing online tax filing software, you can simply follow the on-screen prompts to enter the appropriate information and calculate the credit.
It’s helpful to understand how these calculations work, especially if you’re completing the form by hand. The one-page form is simple, but it does require that you enter specific information, including:
- Total contributions to traditional IRA, Roth IRA, and ABLE accounts for the year (not including rollover amounts)
- Total elective deferrals to a 401(k) or another qualified employer plan.
Download IRS Form 8880 Here
You can download the most current revision of IRS Form 8880 directly from the IRS website. You may only need to download this form if you plan on filing a paper return.
If you plan to file your tax return electronically, you can complete Form 8880 online, which is available for download. As a result, this may be the more straightforward option, as your tax filing software application can transfer over your adjusted gross income amounts for you, which will aid you in the calculation of the credit.
Nothing more complicated than entering the amount of money you contributed to any qualifying retirement plans, as well as any amounts that were distributed from those accounts, prior to the tax filing deadline will be required.
Every year, Form 8880 must be submitted at the same time as your ordinary tax return. The tax filing date is April 15, 2022, for the year 2022. If you require additional time to finish your tax return, you can request a six-month extension by completing Form 4868.5, which is available online. This allows you until Oct. 15, 2022, to file your tax return with the Internal Revenue Service.
Who Has to File Form 8880?
Anyone who intends to claim the saver’s credit on their taxes will need to file Form 8880; however, not everyone is eligible to receive the saver’s credit. That is determined by an individual’s income.
Who Is Eligible for the Saver’s Credit?
You are eligible for the saver’s credit if you are 18 or older, not claimed as a dependent on another person’s return, and not a student. If you meet these criteria, then your eligibility is determined based on your adjusted gross income (AGI).
What Is the Contribution Limit for a 401(k) Plan?
The contribution limit for a 401(k) plan is $19,500 in 2021. This increases to $20,500 in 2022. If you are aged 50 or older, you can contribute an additional $6,500.