It can be a particular challenge to get employees with small paychecks to participate in a retirement plan. This tax credit may help.
Make sure your employees are aware of the “retirement savings contributions credit.”
It’s a saver’s credit to help offset part of the first $2,000 workers voluntarily contribute to IRAs, 401(k)s and similar workplace retirement programs, it’s been in effect since 2002, but was recently made permanent.
Unless you have an IRA, it’s probably too late to get the credit for Tax Year 2008. But you want to tell employees about this now, so they can schedule their contributions for 2009 ASAP.
Here’s who’s eligible for the credit:
- Married couples filing jointly with incomes up to $53,000 in 2008 or $55,500 in 2009
- Heads of Household with incomes up to $39,750 in 2008 or $41,625 in 2009, and
- Married individuals filing separately and singles with incomes up to $26,500 in 2008 or $27,750 in 2009.
There are a few other conditions as well:
- Eligible taxpayers must be at least 18 years of age.
- Anyone claimed as a dependent on someone else’s return cannot take the credit.
- A student cannot take the credit. A person enrolled as a full-time student during any part of five calendar months during the year is considered a student.
- Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2008, this rule applies to distributions received after 2005 and before the due date (including extensions) of the 2008 return. Form 8880 and its instructions have details on making this computation.
This may be the carrot you need to get more of your low- and mid-earners participating in your plan.
For more info, check out www.irs.gov.