If you are eligible to claim the Retirement Savings Contribution Credit, or RSCC, on your tax return, Form 8880 is the paperwork you need to do it. The RSCC allows lower-income taxpayers to get credit for tucking money away into a qualified retirement plan, such as a 401(k), 403(b), traditional IRA, Roth IRA, SIMPLE IRA or SEP IRA. It's an additional credit on top of any tax benefit you get from making the contribution.
Who Needs Form 8880?
To be eligible to claim the RSCC, you must be 18 or over, not a full-time student and not able to be claimed as a dependent on anyone else's tax return. For tax year 2012, the IRS explains, the amount on line 38 of Form 1040, line 22 of Form 1040A; or line 37 for Form 1040NR, cannot exceed $28,750 for single filers, $43,125 for heads of household, or $57,500 if you are married and filing jointly. For 2013, the ceilings are $29,500, $44,250 and $59,000, respectively.
"The amount of the saver’s credit you can get is based on the contributions you make and your credit rate," the IRS notes. Your credit rate might be as low as 10 percent or as high as 50 percent, depending on your adjusted gross income and your filing status. The ceiling is $1,000 for single filers and $2,000 for those married and filing jointly. Form 8880 is available at IRS.gov and IRS offices.
Calculating Net Contributions
The first several lines on Form 8880 ask for the details of your contributions and withdrawals from your retirement plans. You must subtract from your contributions any withdrawals, whether they were eligible retirement distributions (if you're 59 1/2 or older) or early withdrawals from the plan. If you took more money out of your retirement plans in the year than you put it, you aren't eligible to claim the credit and you don't need to file the form. If you have net contributions to your plans, the credit you receive will be based on them.
Calculating the Credit
Line 9 on Form 8880 gives you a chart to figure out your eligible contribution in order to claim the credit. Find both your income level and filing status to report the percentage of the credit you can claim. Line 10 is where you actually make the calculation for the credit. In the following section, you are asked to compare the credit calculation to the tax you owe minus the non-refundable credits you're taking. These credits consist of the foreign tax credit, the education credit, and the child and dependent care credit. The RSCC is not refundable. Your credit is limited to the amount of tax you otherwise would have to pay.
Transferring to Your 1040
The final RSCC calculation is reported on line 50 of Form 1040 as a credit against your the amount of federal income tax owed. If the result of your calculation matches the amount owed, you don't have to pay further taxes. Refundable credits are reported after line 50, so you may even get money back. If you are filing a Form 1040A return, report the credit on line 32. Enter it on line 47 if filing on Form 1040NR.
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