You may be able to pay less tax by contributing to the WWU's Voluntary Investment Program ("VIP") or to an individual retirement account ("IRA").
If you make contributions to the VIP or to an IRA, you may be eligible for a tax credit called the "saver's credit." This credit could reduce the federal income tax you pay dollar for dollar. The amount of the credit you can get is based on the contributions you make and your credit rate. The credit rate can be as low as 10% or as high as 50%, depending on your adjusted gross income: the lower your income, the higher the credit rate. The credit rate also depends on your filing status.
The maximum contribution taken into account for the credit for an individual is $2,000. If you are married filing jointly, the maximum contribution taken into account for the credit is $2,000 each for you and your spouse.
The credit is available to you if you:
- are 18 or older, and
- are not a full-time student, and
- are not claimed as a dependent on someone else's return, and
- have adjusted gross income that does not exceed:
- $57,500 if you are married filing jointly,
- $43,125 if you are a head of household with a qualifying person, or
- $28,750 if you are single or married filing separately
- Section 403(b) annuities, such as the URP and the VIP plans,
- Eligible 457 deferred compensation plan, such as the WSDCP plan,
- Other plans as outlined in IRS Publication 571, Chapter 10.
Reduce your eligible contributions (but not below zero) by the total distributions you received during the testing period (as defined below) from any IRA, plan, or annuity listed above. Also reduce your eligible contributions by any distribution from a Roth IRA that is not rolled over, even if the distribution is not taxable.
The testing period consists of:
- The year in which you claim the credit,
- The 2 years before the year in which you claim the credit, and
- The period after the end of the year in which you claim the credit and before the due date of the return (including extensions) for filing your return for the year in which you claimed the credit.
The amount of this credit will not change the amount of your refundable tax credits. A refundable tax credit, such as the earned income credit or the additional child tax credit, is an amount that you would receive as a refund even if you did not otherwise owe any taxes.
The amount of the credit you can get is based on the contributions you make and your credit rate. The credit rate can be as low as 10% or as high as 50%. Your credit rate depends on your income and your filing status. See IRS Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your credit rate. The maximum contribution taken into account is $2,000 per person. On a joint return, up to $2,000 is taken into account for each spouse.
For more information, see IRS Publication 571, Chapter 10.