Calculating Saver's Tax Credit

[frugalnacho]

I don't have all my documents, but I am trying to fill out my taxes using turbo tax.  I am watching how my numbers change with each new detail I add, but the saver's tax credit is lower than I expected.  I am married, filing jointly and my wife doesn't have any income.

My income is about 60k, I put about 16k into 401k, and 5.5k into each of our tIRA.  So my AGI is around 33k, which below the 36k cut off limit to receive the 50% credit for married and filing jointly.  We each contributed above the $2000 mark, so we should each qualify for a 50% credit of 2k, or 1k each, or 2k total.   Turbo tax is only showing a 1k tax credit. 

Am I missing something?

[catccc]

I haven't used turbo tax in years, but I'm familiar with form 8880.  I think you are correct that you should be getting $2K total.  Are you sure you are giving each person (you and your spouse) credit for at least 2K of contributions?  If you look an actual form 8880, you should have 2K in each of the two columns.  Then in line 7 it should be $4K.  Can you look at the forms in turbotax to see if it is filling it out properly? 

[dandarc]

Also be sure you didn't check the 'claimed as a dependent on someone else's return' in turbo tax or the full-time student boxes?

[MooseOutFront]

Is there an issue with your wife contributing to tIRA without any income?  Maybe it's excluding hers for that reason?

[frugalnacho]

I haven't used turbo tax in years, but I'm familiar with form 8880.  I think you are correct that you should be getting $2K total.  Are you sure you are giving each person (you and your spouse) credit for at least 2K of contributions?  If you look an actual form 8880, you should have 2K in each of the two columns.  Then in line 7 it should be $4K.  Can you look at the forms in turbotax to see if it is filling it out properly?

I downloaded form 8880 and filled it out manually to see where I was making an error and I calculated out $2,000 on line 10 - hence this thread.

I might be able to check the actual forms in turbo tax, but I have not yet (i'm at work now).

No I did not check the claimed as a dependent on someone elses return or the full time student box.

I don't think there should be an issue with it.  She doesn't have any income, but we have an AGI of 33k jointly so I don't see why she wouldn't qualify.

[dandarc]

I think it is a non-refundable credit - you've also got at least a standard deduction & 2 personal exemptions in play.

So your AGI of 33K is reduced to 12,700 taxable income - tax on that would be $1270 so the saver's tax credit would not be more than that.

[frugalnacho]

It's exactly $1,000.00 though, which seems weird.  I will have to double check when I get home to see what my actual tax bill is, but that would be strange for it to be exactly $1000.  I assumed I was making some error in calculation, but I don't see it.

[dandarc]

Do you have other deductions or credits (student loan interest comes to mind)?  May be that your taxable income is exactly 10,000.  We were counting participants in our program at my job last month and came up with with a number for the month that we had chosen as a starting point for testing that landed exactly on 475,000.  Everyone thought this was wrong because of the roundness, however when we ran the same process for other months, the numbers were like 467,894.  Sometimes it just happens that way.  Certainly double check though.

Notice on the form below the worksheet for calculating the limit of the deduction to taxes owed on the 2nd page.

http://www.irs.gov/pub/irs-pdf/f8880.pdf

[frugalnacho]

Wife has a student loan and I think we paid around $260 in interest.  We also have about $5500 in property taxes between two properties.  I will have to check it out in more detail when I get home.

[MDM]

Can you look at the forms in turbotax to see if it is filling it out properly?

I might be able to check the actual forms in turbo tax, but I have not yet (i'm at work now).

This is the best next step.  You can "View>Forms" from the TT menu, see what it has for you on 8880, then go from there.

[frugalnacho]

I am viewing the forms now and I see the error.  dandarc was correct, turbo tax was not filling out the spouse portion on the form for the IRA because I did not check that she was not a student (I thought I did, but neither the yes nor the no box was checked on the forms).

Now I have a different problem.  Even though I qualify for the $2,000 tax credit it's non-refundable and I am only paying $1,173 in taxes, so that's all i'm eligible for.

I am paying $0 in federal income taxes.  I am also getting a return from the state of michigan for $20.85 more than they withheld from my checks this year.

We haven't actually placed the money in my wifes IRA account yet, I have been holding off so I could do a tax analysis and see how much I want in tIRA and how much in the roth.   It looks like I can mess with the numbers and reduce the tIRA contribution to just enough to get my AGI below the 36k threshold to get the 0.5 multiplier and then dump the rest into a roth for her.   Any thoughts on this?

[dandarc]

That sounds like a fantastic plan.  I'm actually recharacterizing a good portion of our Roth IRA contributions for 2014 to Traditional for similar reasons.

Congrats on the 0% income tax rate!

[frugalnacho]

If I split her ira into $2,329 tIRA and $3,171 roth I can up my tax credit to $1493 - which still gives me a $0 federal tax bill.  It reduces my michigan refund by $202 though.   $202 total taxes on $3,171 seems like a decent rate to get that money into a roth.

[MooseOutFront]

kickass man.  Taking advantage of the code really pays off at the lower income ranges, but people dont know it. Is your health insurance employer? Curious how the subsidy plays in here if not.

[frugalnacho]

kickass man.  Taking advantage of the code really pays off at the lower income ranges, but people dont know it. Is your health insurance employer? Curious how the subsidy plays in here if not.

Totally crazy because I make 60k.  That's not low income! I have so much money I was able to sock about $27,000 into retirement accounts, and a few more grand in taxable accounts.  Also I had everything I wanted all year.  I ate steak this week!

My health insurance is through my employer.  I was considering opting out and seeing what I could get on my own, but I haven't had the time to delve into it and see how much it would cost and if it would be a good option.  We are also trying to get pregnant (and just miscarried), so I am nervous about trying to make changes to my insurance plan.  I may still look into and try to figure out what the total cost would be.  I will make around the same amount this year, and I plan to invest just as much in my retirement accounts, so I should have the same AGI next year.  I'm sure if I could get something on the open market for much cheaper that I could work something out with my employer to have them give me a portion of the money they would save by not insuring me.

[MooseOutFront]

kickass man.  Taking advantage of the code really pays off at the lower income ranges, but people dont know it. Is your health insurance employer? Curious how the subsidy plays in here if not.

Totally crazy because I make 60k.  That's not low income! I have so much money I was able to sock about $27,000 into retirement accounts, and a few more grand in taxable accounts.  Also I had everything I wanted all year.  I ate steak this week!

My health insurance is through my employer.  I was considering opting out and seeing what I could get on my own, but I haven't had the time to delve into it and see how much it would cost and if it would be a good option.  We are also trying to get pregnant (and just miscarried), so I am nervous about trying to make changes to my insurance plan.  I may still look into and try to figure out what the total cost would be.  I will make around the same amount this year, and I plan to invest just as much in my retirement accounts, so I should have the same AGI next year.  I'm sure if I could get something on the open market for much cheaper that I could work something out with my employer to have them give me a portion of the money they would save by not insuring me.

Haha I didn't mean to imply that you were poverty stricken.  Just that getting down into the lower taxable income brackets has many benefits.

For the health insurance I'm afraid you'll find that the fact that your employer offers it to you prevents you from getting subsidies on the exchange.  You would probably come out way ahead in this case if your employer didn't offer it.  I don't claim to know all the details here though.

[frugalnacho]

kickass man.  Taking advantage of the code really pays off at the lower income ranges, but people dont know it. Is your health insurance employer? Curious how the subsidy plays in here if not.

Totally crazy because I make 60k.  That's not low income! I have so much money I was able to sock about $27,000 into retirement accounts, and a few more grand in taxable accounts.  Also I had everything I wanted all year.  I ate steak this week!

My health insurance is through my employer.  I was considering opting out and seeing what I could get on my own, but I haven't had the time to delve into it and see how much it would cost and if it would be a good option.  We are also trying to get pregnant (and just miscarried), so I am nervous about trying to make changes to my insurance plan.  I may still look into and try to figure out what the total cost would be.  I will make around the same amount this year, and I plan to invest just as much in my retirement accounts, so I should have the same AGI next year.  I'm sure if I could get something on the open market for much cheaper that I could work something out with my employer to have them give me a portion of the money they would save by not insuring me.

Haha I didn't mean to imply that you were poverty stricken.  Just that getting down into the lower taxable income brackets has many benefits.

For the health insurance I'm afraid you'll find that the fact that your employer offers it to you prevents you from getting subsidies on the exchange.  You would probably come out way ahead in this case if your employer didn't offer it.  I don't claim to know all the details here though.

Yeah I know, it just blows my mind that i'm low enough to pay no taxes when my paycheck is an exploding volcano of money relative to my lifestyle (or any reasonable lifestyle). 

[ambimammular]

You, sir, are a saving rockstar. I'd like to get my saver's credit multiplier to that .2 (or .5) range, but I don't see that happening until the house is paid off.

It's sick how excited I am to do the 8880 form on my taxes.

[frugalnacho]

I "saved" about another $3k by paying down one of my mortgages too.  I almost forget to count that as savings because it's set on autopilot to do an additional $250/mo in principle with each monthly payment.