North Dakota State University -- NDSU Agriculture Communication
7 Morrill Hall, Fargo ND, 58105-5655, Tel: 701-231-7881, Fax: 701-231-7044
agcomm@ndsuext.nodak.edu

February 28, 2002

North Dakotans May Benefit with the Saver’s Tax Credit in 2002

A new Saver’s Tax Credit is now available to middle and lower-income taxpayers. The plan gives a significant tax break for those who set aside money for retirement. In 2001, The United States Congress enacted the plan to encourage workers to make contributions to a retirement plan or Individual Retirement Account (IRA).

"Individuals who are working, can receive a tax credit worth up to 50 percent of a maximum $2,000 contribution and married working couples may each make the maximum contribution", says Debra Pankow, NDSU Extension Service family economics specialist.

Unlike the Earned Income Credit, workers who owe no income tax will not benefit from the Saver’s Tax Credit. The new credit will reduce or eliminate a person’s income tax. People with children who are in low to moderate incomes may see increased benefits for the EIC and the Saver’s Tax Credit when pre-tax contributions are made to a retirement or IRA, because doing so will reduce their after tax income.

People who are eligible to claim the Saver’s Tax Credit must be fall under the following criteria:

  • 18 years old
  • Not full-time students
  • Are not claimed as dependents on someone else’s return
  • Must have adjusted gross income in 2002 no higher than the following amounts:
  1. $50,000 if married filing jointly
  2. $37,000 if filing as head of household
  3. $25,000 if filing single or married filing separately

Workers can make contributions through salary reductions to the following eligible plans:
  • 401(k) plan, including simple 401 (k)
  • 403(b) annuity plan
  • Government 457 plan
  • IRA simple plan
  • Salary reduction SEP (simplified employee pension)
  • After tax contributions by workers to a qualified retirement also qualifies them for the Saver’s Tax Credit

"Credit range can be from 10 to 50 percent of a workers contribution to retirement based upon their adjusted gross income for the tax year. Individuals and couples who have put off setting aside money for their retirement would be well served to take advantage of this new opportunity", Pankow says.

 
Adjusted Gross Income
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Married filing joint    Credit
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     $0 - $15,000       50% of Contribution
$30,001 - $32,500       20% of Contribution
$32,501 - $50,000       10% of Contribution
   Over   $50,000       Not Available
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Head of Household       Credit
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     $0 - $22,500       50% of Contribution
$22,501 - $24,375       20% of Contribution
$24,376 - $37,500       10% of Contribution
   Over   $37,500       Not Available
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All others filers       Credit
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     $0 - $15,000       50% of Contribution
$15,001 - $16,250       20% of Contribution
$16,521 - $25,000       10% of Contribution
   Over   $25,000       Not Available
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The Saver’s Tax Credit is in affect this year, the Internal Revenue Service has provided specific instructions on forms 1040 and 1040A so that workers may compute the tax credit on their returns.

For more information about the Saver’s Tax Credit contact you local county agent or contact Debra Pankow NDSU Extension Service family economics specialist at (701) 231-8593 or at dpankow@ndsuext.nodak.edu

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Source: Debra Pankow, (701) 231-8593, dpankow@ndsuext.nodak.edu
Editor: Rich Mattern, (701) 231-6136, Richard.Mattern@ndsuext.nodak.edu
Writer: JJ Camarillo, (701) 231-8371, Camarillo45@Hotmail.com