You may be eligible for a valuable incentive, which could reduce your federal income tax liability, for contributing to your company’s 401(k) or 403(b) plan.
If you qualify, you may receive a Tax Saver’s Credit of up to $1,000 ($2,000 for married couples filing jointly) if you made eligible contributions to an employer-sponsored retirement savings plan.
The deduction is claimed in the form of a non-refundable tax credit, ranging from 10% to 50% of your annual contribution.
Remember, when you contribute a portion of each paycheck into the plan on a pre-tax basis, you are reducing the amount of your income subject to federal taxation. And, those assets grow tax-deferred until you receive a distribution. If you qualify for the Tax Saver’s Credit, you may even further reduce your taxes.
Your eligibility depends on your adjusted gross income (AGI), your tax filing status, and your retirement contributions. To qualify for the credit, you must be age 18 or older and cannot be a full-time student or claimed as a dependent on someone else’s tax return.
Use this chart to calculate your credit for the tax year 2021. First, determine your AGI – your total income minus all qualified deductions. Then refer to the chart below to see how much you can claim as a tax credit if you qualify.
|Filing Status/Adjusted Gross Income for 2021|
|Amount of Credit||Joint||Head of Household||Single/Others|
|50% of amount deferred||$0 to $39,500||$0 to $29,625||$0 to $19,750|
|20% of amount deferred||$39,501 to $43,000||$29,626 to $32,250||$19,751 to $21,500|
|10% of amount deferred||$43,001 to $66,000||$32,251 to $49,500||$21,501 to $33,000|
Source: IRS Form 8880