The beginning of the year saw quite a buzz of activity as the tax season kicked into gear. Filing deadlines indicated how compliance should be met.
Adhering to the tax calendar is just as important as saving towards your retirement. What makes this decision even more attractive is when you get rewarded for doing so. And this is exactly what the IRS has done.
The retirement savings contribution credit, or “saver’s credit,” was implemented to reward those individuals who contribute to a retirement account.
A little background information on the saver’s credit
The saver’s credit is a nonrefundable tax credit worth up to the maximum value of $2,000 for joint filers and $1,000 for single filers. The value of the credit is calculated based on contributions made to 401(k), Roth IRA, etc. Eligibility can be anything from 10%, 20%, or even 50% of the maximum contribution amount. It also depends on the gross income as well as the filing status of the individual.
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Rollovers from existing retirement accounts are not allowed. This tax credit is only available to individuals 18 years or older who have not been claimed as a dependent on another person’s tax return and are not full-time students. An adjusted gross income (AGI) cap is set annually by the IRS, which sets the threshold for the saver’s credit. The AGI or adjusted gross income threshold applies to income received during 2024, payable on the 2025 tax returns:
Head of household tax filers
- 10% of the contribution
- AGI of $37,501 – $57,375
- 20% of the contribution
- AGI of $34,501 – $37,500
- 50% of the contribution
- AGI of $34,500 and less.
Married couples filing jointly
- 10% of the contribution
- AGI of $50,001 – $76,500
- 20% of the contribution
- AGI of $46,001 – $50,000
- 50% of the contribution
- AGI of $46,000 or less.
The value of a saver’s credit is calculated based on the worth (50%, 20%, or 10%) of a maximum contribution of $4,000 for a joint filer or $2,000 for single filers. As a single filer, if you therefore contribute $1,000 of your $19,000 earnings, the value would then amount to $500. The taxable income can also be reduced by the amount of the contribution if the contribution was made to an account offering a tax deduction.
Getting everything filed on time with the IRS
Conforming to the above will leave another hurdle in the way – the tax deadline. Good news applies to certain states, as their tax filing deadline has been extended. According to the IRS official website, an automatic tax extension was given until 1 May 2025 for states affected by the FEMA (Federal Emergency Management Agency) disaster declarations from 2024:
- Florida
- Georgia
- South Carolina
- North Carolina
- Alabama
- And then parts of:
- Alaska (Juneau)
- Virginia
- New Mexico (Chaves County)
- Tenneessee
- And then parts of:
Why did some of the states benefit from a tax extension?
Natural disasters seem to have been the main reason behind this extension. All five of the states mentioned above suffered from the devastation caused by Hurricane Helen. Juneau in Alaska fell victim to some serious flooding, which started during August of 2024. On the other hand, those individuals working and residing within Chaves County, New Mexico, suffered under the severe flooding and storms of October 2024.
Other states that also fell victim to natural disasters, such as mudslides, landslides, and the devastating wildfires of Los Angeles County in California, had their tax deadlines pushed back even more. These deadline extensions are automatically implemented as long as the individual’s or business’s address record is indicative of this state. Those who reside outside the areas in question but whose tax records fall within will also be eligible for this extension.
These individuals are encouraged to contact the IRS to ensure that the relevant steps can be taken. The list on the IRS website is constantly updated with relevant tax deadlines and extensions.
