Tax season is rapidly approaching and we at the Fort Irwin Tax Center would like to provide some important information that may save you money on your taxes. The tax code strongly influences the way we plan our finances and provides incentives for certain things like Education Credit which rewards taxpayers monetarily for continuing their education. Much like the education credit, the Saver’s Credit offers monetary incentive to low and moderate income taxpayers when we set aside earnings for retirement purposes through an IRA, TSP, 401K, 403B, 457B, or any other IRS recognized retirement account. If you are 18 or older, NOT a full-time student, and are not claimed as a dependent on another taxpayer’s return, you may qualify for the Saver’s Credit. The Saver’s Credit should appeal most to our enlisted service members. The credit is an actual tax credit, as opposed to a tax deduction which makes it far more valuable. A tax deduction simply subtracts the value from your taxable income and you pay taxes on the remaining taxable income. A tax credit, on the other hand, actually subtracts the value from the taxes you owe. The following examples demonstrate how the Saver’s Credit can save you money this year:
PV2 Smith is single, earned $21,078 in 2016, and invested $107 per pay period into his TSP. PV2 Smith may claim a Saver’s credit of $1,289. If he increases his investment by $59 per pay period, PV2 Smith may claim a Saver’s Credit of $2,000.
SFC Snuffy is married, earned $52,040 in 2016, and invested $520 per month into his TSP for a total saver’s contribution of $6,240 for 2016. His adjusted gross income ($52,040 – $6,240) is $45,800 and may earn him a credit of $624. If SFC Snuffy had other deductions (i.e. rental loss, tuition deduction, or capital loss) that reduces his taxable income below $37,000, his new Saver’s Credit may increase to $3,120.
The amount of the Saver’s Credit depends on your income level and your contribution amount. Most contributions made before the end of the year can be claimed on your tax returns. Some contributions can be made through the end of the 2017 tax season. If you are interested in this credit, and would like more information contact The Fort Irwin Tax Center 760-380-3604. For the IRS explanation of the credit, please click on the following link: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit