Single Mom With Cash

Save An Extra $1,000 On Your Taxes With This Little-Known Credit

Most single moms have no idea they could shrink their tax bills by up to $1,000 extra.

But it’s actually very easy. Plus, it’s in the form of a tax credit – called the Saver’s Credit – that benefits you twice.

First off, this is a tax credit, not a tax deduction. A tax deduction lowers the amount of money you have to pay tax on, so you get to keep only a percentage of it (for example, you’d pay tax on $29,000 instead of $30,000). A tax credit comes right off of your tax bill, dollar for dollar. So if your tax bill was $3,600 before the credit, it would drop down to $2,600 after… a full $1,000 back in your pocket – and what single mom couldn’t use that?

Second – this tax credit goes to people who voluntarily put money into some kind of retirement account – which I 100% recommend you do. Money you stash away for retirement can usually be deducted from your taxable income. For example, if you put $2,000 into your 401(k) or an IRA, that $2,000 comes off of the income you have to pay taxes on.

So with the Saver’s Credit, you really get a tax deduction and a tax credit – a double tax bonus for you. Plus, you put some money into a retirement account, something every single mom should do – even if it’s just a small amount.

Here’s how it works:

The Saver’s Credit is a percentage (more on that in a second) gets applied to the first $2,000 you contribute to a retirement plan. That could be through your job: a 401(k) or 403(b) plan, for example. Or, it could be a self-funded IRA. The maximum credit is $1,000.

There are a bunch of conditions for this tax credit – but millions of people meet them, even though they don’t realize they could take the credit. To be eligible for the credit…

  1. You have to be at least 18 years old.
  2. You can’t be a full-time student.
  3. You can’t be claimed as a dependent on someone else’s tax return.
  4. Your adjusted gross income has to be less than $30,750 if you file as Single or less than $46,125 if you file as Head of Household (and you should absolutely use this filing status if you can).

Once you qualify, there are different percentages for different income levels: 50%, 20%, and 10%. The less money you make, the bigger your percentage. Here’s the Saver’s Credit table put out by the IRS for your 2016 taxes:

2016 Saver’s Credit
Credit Rate Married Filing Jointly Head of Household All Other Filers*
50 % of your contribution AGI not more than $37,000 AGI not more than $27,750 AGI not more than $18,500
20% of your contribution $37,001 – $40,000 $27,751 – $30,000 $18,501 – $20,000
10% of your contribution $40,001 – $61,500 $30,001 – $46,125 $20,001 – $30,750
0% of your contribution more than $61,500 more than $46,125 more than $30,750

* All other filers includes Single, Married Filing Separate, and Qualifying Widow


Here are some examples of how this credit could apply to you:

Joanna, a pre-school teacher and single mom, made $28,500 in 2016. She contributed $1,200 to her IRA. That retirement plan contribution reduces her adjusted gross income (AGI) down to $27,300. If she files as Head of Household, Joanna can claim a 50% tax credit – $600 – for her $1,200 IRA contribution.

Belinda, another single mom, had $42,000 of AGI for 2016. During the year, she contributed $4,000 to her 401(k) plan at work. At that income level, she can deduct 10% of her retirement contributions up to $2,000 (if she files as Head of Household). So Belinda’s Saver’s Credit would come to $200.

The amount you’re eligible for comes right off of the amount of taxes you owe – so you’ll either pay less or get a bigger refund – but the credit can’t be more than your total tax bill. For example, if your income tax comes to $800, and you would be eligible for a $1,000 credit, you don’t get the extra $200 refunded to you – it would just zero out your tax bill.

To take full advantage of the Saver’s Credit, you have to use either Form 1040 or 1040A when you do your taxes – you can’t use Form 1040-EZ for this. You also have to fill out an extra form, Form 8880. If you have any questions about this lucrative tax credit – or any other tax questions – please post them in the comments, and I will answer you as soon as possible.

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