Up To A $2,000 Income Tax Credit For Retirement Savings Contribution
When you file this year's 1040 income tax return you may be entitled to obtain an income tax credit of up to $1,000 (up to $2,000 if filing jointly) if you make an eligible contribution to an employer sponsored retirement plan or an Individual Retirement Account. This credit is a nonrefundable tax credit. A nonrefundable credit cannot be greater than the amount of your tax liability. This credit is in addition to any IRA contribution or contributions that you may make to a qualified plan
How the Credit is Determined - The credit is computed based on the your filing status and your adjusted gross income. The IRS provides a table that indicates an applicable % ranging from 10% to 50% to establish the amount of the credit.
Eligibility In order to use the credit, the following requirements must be met:(A)You must have made a contribution to an Individual Retirement Account or qualified retirement savings plan. (B) On December 31, 2009 you are required to be at least 18 years old. (C) You must not be claimed as a dependent by another person. (D) You not allowed to be a full-time student. (E)You had to be born prior to January 2, 1992. (F)Your adjusted gross income cannot be higher than $27,750 if single, or $41,625 for a head of household or $55,500 if married filing jointly.
Distribution limitations - Distributions generally reduce the eligible contributions. The contributions taken into account in determining the credit must be reduced by distributions received by the taxpayer over a defined period, which the IRS calls the "test period". The "test period" includes the current tax year, the following tax year up to the due date of the tax return including filed extensions, plus the two preceding tax years. However, rollover distributions and trustee to trustee transfers are not included as a reduction in the amount of the credit. Distributions from a military retirement plan do not reduce the taxpayers contribution.
Claiming the credit The credit can be claimed on your Form 8880, Credit for Qualified Retirement Savings Contributions. Taxpayers can only claim the credit if they file Forms 1040 or 1040A. Taxpayers that normally filed Form 1040EZ just need to file Form 1040 in order to claim this credit. Taxpayers who file their 2009 tax return claiming an IRA contribution that is going to be made in 2010, the IRS allows such taxpayers to consider that contribution as long it is being made prior to the filing date of their tax return in 2010 as an allowable contribution for purposes of determining the amount of this credit. The amount of the retirement savings contribution credit claimed by a taxpayer cannot exceed the taxpayer's regular income tax liability less foreign tax credits plus alternative minimum tax liabilities.
This article is not intended to provide legal or accounting advice. Because the tax laws are complex, change constantly and each situation is unique, the reader is advised to do his or her own due diligence and consult with professionals in these areas.
How the Credit is Determined - The credit is computed based on the your filing status and your adjusted gross income. The IRS provides a table that indicates an applicable % ranging from 10% to 50% to establish the amount of the credit.
Eligibility In order to use the credit, the following requirements must be met:(A)You must have made a contribution to an Individual Retirement Account or qualified retirement savings plan. (B) On December 31, 2009 you are required to be at least 18 years old. (C) You must not be claimed as a dependent by another person. (D) You not allowed to be a full-time student. (E)You had to be born prior to January 2, 1992. (F)Your adjusted gross income cannot be higher than $27,750 if single, or $41,625 for a head of household or $55,500 if married filing jointly.
Distribution limitations - Distributions generally reduce the eligible contributions. The contributions taken into account in determining the credit must be reduced by distributions received by the taxpayer over a defined period, which the IRS calls the "test period". The "test period" includes the current tax year, the following tax year up to the due date of the tax return including filed extensions, plus the two preceding tax years. However, rollover distributions and trustee to trustee transfers are not included as a reduction in the amount of the credit. Distributions from a military retirement plan do not reduce the taxpayers contribution.
Claiming the credit The credit can be claimed on your Form 8880, Credit for Qualified Retirement Savings Contributions. Taxpayers can only claim the credit if they file Forms 1040 or 1040A. Taxpayers that normally filed Form 1040EZ just need to file Form 1040 in order to claim this credit. Taxpayers who file their 2009 tax return claiming an IRA contribution that is going to be made in 2010, the IRS allows such taxpayers to consider that contribution as long it is being made prior to the filing date of their tax return in 2010 as an allowable contribution for purposes of determining the amount of this credit. The amount of the retirement savings contribution credit claimed by a taxpayer cannot exceed the taxpayer's regular income tax liability less foreign tax credits plus alternative minimum tax liabilities.
This article is not intended to provide legal or accounting advice. Because the tax laws are complex, change constantly and each situation is unique, the reader is advised to do his or her own due diligence and consult with professionals in these areas.