Our joint inome for 2022 was about $49000. I did not get the tax savers credit after contributing to a 401k like I did in 2020. I did rollover $10000

[canuck97]

I did not receive the tax savers credit for 2022 like we did in 2020.  We contributed $1500 to 401K and our joint income was $49000.  I did convert $10000 from a traditional IRA to a Roth IRA, and I understand that an IRA withdrawl will reduce or eliminate the credit.  But does a Roth conversion also reduce the credit?   Trying to understand why turbo tax said I did not qualify for the savers credit this year

Thanks in advance

[dmertz]

Rollovers and Roth conversions do not reduce the credit.  Make sure that you have properly reported the traditional IRA distribution as having been converted to Roth.

The credit is a nonrefundable credit, so if you have no tax liability before considering this credit, you do not receive any credit.

Retirement distributions in the preceding two years and through the filing date of your tax return by either you or your spouse that were not rolled over reduce the amount of new contributions considered for the credit.

[canuck97]

@dmertz 

I just checked my 1099-R summary that I filed with my return yesterday and indeed I have entered that my entire $10000 was converted to a Roth IRA.

So either you are wrong and this conversion affects the savers credit or there is  a bug in the TurboTax software ( and I have found 2 in the previous 3 years ).

Turbo Tax should have included form 8880 into my return and it did not.

[dmertz]

It's unlikely that this feature of TurboTax has a problem.  I'm sure it has something to do with your entries.

I just now tested a joint tax return with $24,000 of wages in box 1 of my W-2, $2,000 with code D in box 12 and entered a Form 1099-R reporting a Roth conversion of $25,000, producing an AGI of $49,000.  When I go through the Retirement Savings Contributions Credit section and indicate that I am not a full-time student, that I cannot be claimed as a dependent and the neither I nor my spouse received any distributions that were not rolled over over or converted to Roth,  TurboTax produced the correct $200 credit on Form 8880.

I'm assuming that the $49,000 of income that you stated is your AGI and included the taxable amount of the Roth conversion.  It's your AGI that determines the credit ratio.

[canuck97]

@dmertz 

Thanks for your response.  Yes the $49000 is my AGI, we contributed about $1500 to 401k, so I was expecting a credit of $150.  And I had a total tax owed of about $1800.  In addition of converting $10K to a Roth in 2022, I also converted $100K to a Roth in 2021,    I also checked my 2021 return to verify the 1099-R form showed a conversion to a Roth, and not an ordinary IRA withdrawl.  

I have to wait a couple of days before I try to amend the return ( because I just filed yesterday )and go through that section again to double check everything.  

If you don't mind, watch for my response in a couple of days.

Thanks again!

[canuck97]

@dmertz so I started to amend my return and got to the point where I can check for the savers credit and this is what it says about why I don't qualify for the credit:

Why don't I qualify for the Retirement Savings Contribution Credit?

After applying all your other credits and deductions, it looks like you don't owe any taxes this year. That's great news, but it also means you're not eligible for the credit this year.

Now let me explain something.  My total taxes owed for 2022 was $1816.  But I prepaid $9500 in estimated taxes.  So after my estimated taxe, I owe nothing at time of filing and I am instead getting a large refund.   But surely making estimated tax payments doesnt cheat me out of my saver's credit?   The reason why I made such large estimated payments was because at one point I was planning on converting a lot more to a Roth.

It seems Turbo tax should be checking the savers credit against my tax obligation of $1816, not whether or not I owe more taxes or not when I file.  Agreed?

[dmertz]

Agreed, and that is what TurboTax does.

Be aware that this credit can only be applied against income taxes and Form 1040 line 22 [I originally typed line 13] cannot be reduced below zero.  This credit cannot be applied against Other taxes such as penalties determined on Form 5329 or self-employment tax, the total of which is shown on Form 1040 line 23 [I originally typed line 14].  

[canuck97]

@dmertz in your previous post you said " Form 1040 line 13 cannot be reduced below zero".  Line 13 on my form is "qualified business deduction" I assume you mean line 24 "total tax" and for me this is $1812.  And line 16 "tax" is $2298 before a foreign tax credit.

So clearly I had a tax liability and I should have got the credit.  Again here is the reason turbo tax provided for not getting the credit:

Why don't I qualify for the Retirement Savings Contribution Credit?

After applying all your other credits and deductions, it looks like you don't owe any taxes this year. That's great news, but it also means you're not eligible for the credit this year.

[canuck97]

@dmertz I just got off the phone with turbo tax support and he said that I won't get the credit because I am getting a refund.  He confirmed that making the excess estimated pre-payments  cheated me out of the savers credit.  

So before I believe you had done a fake tax form entry as a test proving that the tax credit worked as expected for a roth conversion.  Could you enhance this test to make some estimated tax payments that signficantly exceed the tax liability to see if the saver's credit is denied?

[dmertz]

Sorry, I was looking at the wrong year's Form 1040 for the line numbers.  I've corrected my previous post to indicate that line 22 of Form 1040 cannot be reduced below zero by this credit.

"... making the excess estimated pre-payments  cheated me out of the savers credit."

That's entirely incorrect.  The amount that you have withheld for income taxes or pay in estimated taxes has absolutely no bearing on the amount of Retirement Savings Contributions Credit that is applied to your income tax liability.  The credit is applied on Form 1040 line 20 and subtracted from income-tax liability on line 22.  Credits for tax withholding and estimated taxes do appear on your tax return until line 25.

It would seem that you have Other taxes on Form 1040 line 23 that is not permitted to be reduced by any nonrefundable credits.

[canuck97]

@dmertz I agree with you 100% that what you say is how it should work.  

But I ask again can you change your test tax form to include large estimated tax payments to prove ( or disprove ) that the savers credit is still shown by turbo tax.  My guess is that it won't.

[dmertz]

And I just now confirmed again that that's the way it does work.  Increasing the amount withheld for taxes and increasing estimated tax payments produces a corresponding increase in the tax refund.  Filing Single, I entered a W-2 with $20,000 in box 1, $20,000 in box 2 and $2000 in box 12 with code D.  I also entered a $100,000 Q1 estimated federal tax payment.  The Retirement Savings Contributions Credit reduced the otherwise $708 income tax liability to zero, resulting in a tax refund of $120,000.

Changing to Married Filing Jointly and $41,000 in box 1 of the W-2 results in an entire $1,000 credit being applied, reducing the income tax liability from $1,513 to $513 and a refund of $119,487.

[canuck97]

@dmertz you said "It would seem that you have Other taxes on Form 1040 line 23 that is not permitted to be reduced by any nonrefundable credits."

FALSE

Here is more info from my form:

Line 11: $48836 ( AGI )

Line 12: $25900 ( standard deduction )

Line 15: $22936 ( taxable income )

Line 16: $2298 ( tax owed from tax tables )

Line 17: 0

Line 18: $2298

Line 19: 0

Line 20: $482   (foreign tax credit )

Line 21: $482

Line 22: $1816

Line 23: 0

Line 24: $1816  ( total tax )

Line 25a: $2404 ( tax paid on W2s )

Line 25d: $2404

Line 26: $5000  ( total estimated payments )

Line 33: $7404  ( Total Tax Payments )

Line 34: $5588 ( Refund amount )

[dmertz]

At $48,450 in box 1 of the W-2 when Married filing Jointly (which produces an income tax liability of $2,298), each spouse's credit is equal to only 10% of the first $2,000 of retirement contributions.  That's a maximum of $200 of this credit per spouse.  Line 20 is showing more than $400, so it appears that there is some other credit on Schedule 3 as well (the foreign tax credit?).

With just $1,500 contributed to retirement, the maximum possible for this credit is $150 under these circumstances.

[canuck97]

@dmertz Yes I have a foreign tax credit of $482, but that shouldn't affect the savers credit should it? Schedule 3 shows only the foreign tax credit, nothing for the retirement savings credit since turbo tax did not pull in form 8880,