If you make eligible contributions to a savings plan set up for your retirement, and you meet certain requirements, you may qualify for a tax credit that can directly reduce your federal income tax by up to $1,000, and up to $2,000 if you are married filing jointly. This credit can be claimed in addition to the deduction for contributions to your IRA. You claim the credit by filing Form 8880 with your annual federal income tax return.
Qualifying Tests
This credit is available for contributions to a qualified retirement plan, a deferred compensation plan, or an Individual Retirement Arrangement (IRA). In order to qualify, you must meet the following tests:
You must have been born before January 2, 1987.
You cannot be a full-time student. You are considered a full-time student if you are enrolled for what the school considers to be a full-time course workload during some part of at least 5 calendar months during the year.
No one else can claim an exemption for you on their tax return.
Your adjusted gross income must not be more than:
$25,000 if you are filing as single, married filing separately, or qualifying widow(er) with a dependent child,
$37,500 if you are filing as head of household with a qualifying person, or
$50,000 if you are married filing jointly.
Eligible Contributions
You may be able to take this credit if you, or your spouse if you are married filing jointly, made:
Contributions to a traditional or Roth IRA.
Elective deferrals to a 401(k), 403(b), 457, SIMPLE IRA, or SEP salary reduction plan.
Voluntary contributions to a qualified retirement plan.