Saver’s Credit, Form 8880, has generated several questions asking why a taxpayer is not receiving the credit when it was allowed on a prior year return with similar entries.
- Obviously, if income limits are exceeded, there is no credit. But when a taxpayer voluntarily contributes to a qualified retirement plan (Code D on W2, or an IRA as examples) AND receives a distribution on a 1099R, that distribution is an offset dollar for dollar to the contribution. That offset occurs with most, but not all, retirement income. See Pub 4012, G 6 and 7 for details.
- Any income received by TP from a plan to which contributions were mandatory (not voluntary) should not offset the credit. The most common example is military retirement, which is mandatory and should not reduce/offset the Saver’s Credit. However, TaxSlayer treats all 1099R income as offset.
- So, another workaround from NTTC: on the TS 8880 input page, enter the TP’s total military retirement income as a negative number on the line that says “Enter Any Other Taxable Distributions in 2016 or 2015.” That prevents the offset.