Okay, now that you are with me, I want you to see if this scenario applies to you. Do you like saving money for doing what you already do? That's a no-brainer, right? and you probably have some sort of retirement account, and have contributed to it this year. Maybe it's an IRA (Roth, Traditional, or SEP are all fine)... If you don't have any of those, think back for a second. Did you sign up for one of those employer sponsored retirement accounts? It's really easy to let those slip your mind because they more or less go on autopilot. Well, now is the time to remember it! It doesn't matter if it's a 401k, 403b, 457b, Thrift Savings Plan, you name it. Frankly, the IRS doesn't seem to care much which type of retirement savings plan you contributed to, if you fall within their income guidelines, you qualify for a credit. The IRS isn't going to come knocking at your door to let you know that you have more money sitting at the table (it would be great if they did), so you had better know that you've got this one coming.
Tax Professionals sometimes call this "the savers credit," while the IRS refers to it as form 8880. Regardless of what you call it, this is a good deal. In the tax game, there are two kinds of credits referred to as refundable and nonrefundable and refundable. Nonrefundable credits are the kind that reduce the amount of tax you owe. Refundable credits can increase the amount of your return (aka your check in the mail). Quite frankly, you want to have as many of both kinds as you possibly can. If you can get your tax bill reduced to zero through the nonrefundable type, then you can set yourself up for a break-even or refund situation... Anyhow, this credit for retirement savings is the kind that reduces your tax bill.
The IRS says that you must be within their income guidelines in order to qualify. In the 2016 tax year, you must:
- Make $30,750 or less for single filers
- Make $46,125 or less for those filing head of household
- Make $61,500 or less for married people filing jointly