a tax credit for a SEP-IRA
A friend asked me a question regarding the
retirement saver's credit and how it relates to SEP contributions.
I don't know the answer and am getting more confused trying to figure
If you are self-employed and have a SEP-IRA and contribute
to that, can you claim the credit? Or are you precluded since you
are the employer as well as the employee?
Publication 590 talks about salary reduction
SEP; I thought all SEPs were basically salary reduction mechanisms.
Thanks for any light you can shed on this.
In order to encourage retirement savings among
lower-income taxpayers, Congress provides a tax credit against federal
income taxes for contributions made to most retirement plans.
You may be able to take the credit if you make eligible contributions
to a qualified retirement plan, an eligible deferred-compensation
plan or an individual retirement arrangement (IRA). You might be
able to take a credit of up to $1,000 (up to $2,000 if filing jointly).
In addition to the tax savings you get from taking a deduction,
this credit could reduce the federal income tax you pay dollar for
You can claim the credit if all of the following apply:
- You were born before Jan. 2, 1987.
- You are not a full-time student.
- No one else claims an exemption for you on their
- Your adjusted gross income is not more than:
a) $50,000 if your filing status is married filing jointly,
b) $37,500 if your filing status is head of household (with qualifying
c) $25,000 if your filing status is single, married filing separately
or qualifying widow(er) with dependent child.
Although you're right -- Publication 590 doesn't make
it clear that a SEP-IRA contribution for a self-employed individual
is eligible -- practically all retirement savings plans are eligible
for the credit. For example, included are after-tax contributions
such as to a Roth IRA and to a retirement plan. If your W-2 shows
retirement-plan contributions, these would also be eligible for
The amount of the credit you can get is based on the
contributions you make and your credit rate. Your credit rate can
be as low as 10 percent or as high as 50 percent. Your credit rate
depends on your income and your filing status. The higher your income,
the lower the credit rate. See Form
8880 to determine your credit rate.
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