Important - This may save you money!
The Tax Relief Act of 2001 provides an additional incentive for some BYU personnel to participate in retirement savings plans. Low and middle-income savers may be eligible for a special tax credit called the "Saver's Credit." Remember, a tax credit is a dollar elimination of tax liability, which is even more valuable than a tax deduction!
Here's How It works:
The tax credit may be as low as 10% or as high as 50% (to a maximum of $2,000) depending on your adjusted gross income in 2004. The tax credit is available if you:
- Are age 18 or older.
- Are not a full-time student.
- Will not be claimed as a dependent on someone else's tax return.
- Have a federal tax liability for 2004.
- Have an adjusted gross income on your 2004 tax return within the parameters listed below.
Adjusted Gross Income:
| Single | Head of Household | Married Filing Joint | Credit |
|---|---|---|---|
| $0 - $15,000 | $0 - $22,500 | $0 - $30,000 | 50% of Contribution |
| $15,001 - $16,250 | $22,501 - $24,375 | $30,001 - $32,500 | 20% of Contribution |
| $16,251 - $25,000 | $24,375 - $37,000 | $32,501 - $50,000 | 10% of Contribution |
| Over $25,000 | Over $37,500 | Over $50,000 | Not Available |
Examples:
| Filing Status | Adjusted Gross Income | Personal Contribution | Matching Contribution | Tax Credit |
|---|---|---|---|---|
| *Married/Joint | $30,000 | 5% ($1,500) | 4% ($1,200) | 50% ($750) |
| **Single | $16,250 | 5% ($812) | 4% ($650 | 20% ($162) |
* The first example shows a married couple investing $1,500 of their own money in the DMBA Thrift Plan. They will receive the University matching contribution of $1,200 for a total contribution of $2,700. After receiving their tax credit of $750, the net cost of their investment is $750. ($1,500 personal investment - $750 tax credit = $750 total cost). What a bargain!
**Similarly, the second example shows a single person investing $812 of his or her own money in the DMBA Thrift Plan. This employee will receive the University matching contribution of $650 for a total contribution of $1,462. After receiving the tax credit of $162, the net cost of the investment is $650. ($812 personal investment - $162 tax credit = $650 total cost).
At tax time, remember to inform your tax preparer that you may qualify for the Saver's Credit!