Form 8880 | Tax Incentives for Retirement Account Contributions

IRS Form 8880: What is it For?

Form 8880

Getting by each day and being unable to afford the price of living is stressful. With a lower income, it can be challenging to save for the future. Lower-income households tend to put less money into retirement accounts each year. This is a problem. It means that many lower-income families may never experience financial freedom and stability, even in later life.

The IRS Form 8880 is an incentive for exactly this population. It’s purpose is to encourage and reward lower-income families, married couples, and individuals for contributing to their retirement accounts. It does so by offering a tax credit for these contributions.

The Form 8880 tax credit is often referred to as the “Saver’s Credit.” It is meant for filing with Form 1040 or Form 1040NR. The full name of the form is the Retirement Savings Contributions Credit. The qualifications change slightly from year to year to adjust for inflation and other factors.

Form 8880 Instructions: The Complete Guide

Tax forms can be incredibly confusing. What’s more, the penalties for filling out incomplete or incorrect information can be costly. Knowing exactly which information belongs where will save you money and time. Many are unaware that they even qualify often overlook this form.

Below is some preliminary information about obtaining and turning in the Form 8880. Following that is a line-by-line walk-through of the form. The goal is to make sure you’re fully informed about exactly what to include on the 8880 Form.

Deadlines

The deadline for filing this form is is April 15 of the year following the year you are paying taxes on. There are also deadlines when it comes to qualifying amounts. Contributions made to retirement accounts can only be included until a certain date. That date is different depending on which retirement accounts you have.

For 401(k) and other workplace plans, the deadline for making contributions is December 31 of the tax year. So even though you fill out and file your 2018 taxes in April of 2019, the only contributions you can include are those that happened before December 31, 2018.

On the other hand, for IRAs the deadline for contributions is April 15. That means that even contributions made merely days before filing your taxes on time can be counted on the form.

Line-By-Line Instructions

The first part of the Form 8880 includes inputting contributions to eligible accounts for both you and your spouse.

Line 1 is for IRA accounts. This should include all contributions up until April 15 of the year you are filing.

Line 2 is for elective deferrals to workplace plans. So if your employer is matching funds that would go here as well. But this line can only include contributions made until December 31 of the taxable year.

Line 3 is the sum of Lines 1 and 2 for you and your spouse.

Line 4 is this sum combined. The same amount should be placed in both yours and your spouse’s boxes.

Line 5 is this total sum subtracted from your individual sum.

Line 6 is the total of your credit. It should be whichever (you or your spouse’s) box is a smaller number. If that number is greater than $2,000, then place the max amount of $2,000 in the box. No number in this box should exceed this amount.

Line 7 is the sum of both boxes on line 6.

Line 8 will require you to refer to the form you are filing this with. That would be Form 1040, Form 1040-A, or Form 1040-NR.

The table at line 9 allows you to calculate your credit by utilizing your AGI and filing status.

Line 10 includes multiplying the sum on line 7 and the calculated amount from line 9.

Line 11 must be calculated by utilizing the Credit Limit Worksheet. This should be located in the instructions attached to 8880 Form. It is also explained in detail below.

Line 12 should match line 51 on Form 1040, line 34 on Form 1040-A, and line 48 on Form 1040-NR. It is the smaller amount of either line 10 or line 11 from tax Form 8880.

Form 8880 Taxpayer Distributions and Calculations

The way that Form 8880 distributes tax credits involves several factors. First, all qualifying parties must be below a certain income. Once you are in that range, the lower the income, the greater percentage of your contribution you can make back. Individuals or families can make 10%, 20%, or 50% of their contributions back. There is a maximum credit is $1,000 for individuals and $2,000 for those filing jointly.

The individuals, couples, and families with the lowest incomes proportionately qualify for the 50% credit. Those who make the most qualify for the 10% if they qualify at all.

2018 Saver’s Credit 

Filling Status

Credit Rate = 50% of the contribution

Credit Rate = 20% of the contribution

Credit Rate = 10% of the contribution

Credit Rate = 0% of the contribution

Single

Less than $19,000 AGI

$19,001-$20,500 AGI

$20,501-$31,500 AGI

More than $31,500 AGI

Head of Household

Less than $28,000 AGI

$28,501-$30,750 AGI

$30,751-$47,250 AGI

More than $47,250 AGI

Filing Jointly

Less than $38,000 AGI

$38,001-$41,000 AGI

$41,001-$63,000 AGI

More than $63,000 AGI

Credit Limit Worksheet and Eligibility

Eligibility

Individuals, joint filers, and heads of household need to be older than eighteen years old to benefit fully from the Saver’s Credit. They may not currently be enrolled as a full-time student. In addition, filers cannot be listed as a dependent on anyone else’s taxes to claim this credit.

Not all retirement account contributions count toward getting this tax credit. The eligible accounts are IRAs including Roth IRAs, 401(k) plans and other workplace plans, 203(b) plans, 457 plans, SEP, SIMPLE plan, 501(c)(18)(D). As of this year, contributions to Achieving a Better Life Experience count as well. More accounts may be added to the list of eligibility as time goes on.

Credit Limit Worksheet

To fill out Line 11 on the IRS Tax Form 8880, you must complete the Credit Limit Worksheet:

Locate your Form 1040, line 30, or Form 1040NR, line 45. Select the dollar amount on this line.

This step depends on which form you use. For Form 1040, find the sum of your credits from Schedule R, line 22 and lines 48-50. For Form 1040-A, find the sum of lines 31-33. For Form 1040-NR, find the sum of lines 46-47.

Now you have two numbers. The first is the dollar amount from the form, and the second was a sum that you came up with by adding amounts from your form. Subtract the second number (the sum) from the first number (the amount you located on your form). This amount can be entered on federal Form 8880, line 11.

Tax Year Updates

Calculating tax credits is complex and variable. It depends on several factors including yearly income, filing status (joint, single, or as head of household), amount of contributions, and type of retirement account. As such, the calculations change from year to year. These changes can affect the income limits for eligibility, as well as the retirement accounts that qualify.

Some changes serve to adjust this tax credit for inflation and the state of the economy. Others are meant to make the program more accessible. Below are some recent amendments to the official eligibility for the Saver’s Credit. These are true for anyone filing for the year 2018.

Income
  • As of 2018, the maximum qualifying income has risen slightly for those filing as single, jointly, or as the head of household.
Qualifying Retirement Accounts
  • As of this year, 2018, contributions to Achieving a Better Life Experience accounts also count toward your credit.