Saver's Credit not calculating with SEP IRA contribution but does for regular IRA contribution

[1234512]

I originally entered my IRA contribution as a traditional IRA contribution, and Turbo Tax calculated and gave me the Saver's Credit. When I deleted that entry and entered the same amount as a SEP IRA contribution instead, Turbo Tax does not calculate the Saver's Credit.  What am I doing wrong? Technically, tax savings and the Saver's Credit amounts should be the same whether it's a SEP IRA or a traditional IRA contribution, right?

[DawnC]

The amount of your Saver's credit should be the same if you reported the same of amount of employee contributions when you entered each contribution amount -  Look for form 8880 in your tax return and see what it shows.    You only get the credit for the employee contribution - not for the employer contribution…..  Double-check the amount that is reported as an employee vs. employer contributions.  

The contributions you make to each employee’s SEP-IRA each year cannot exceed the lesser of:

1. 25% of compensation, or
2. $57,000 for 2020 ($56,000 for 2019 and subject to annual cost-of-living adjustments for later years)

These limits apply to contributions you make for your employees to all defined contribution plans, which includes SEPs.  Compensation up to $285,000 in 2020 ($280,000 in 2019 and subject to cost-of-living adjustments for later years) of an employee’s compensation may be considered.  If you're self-employed, use a special calculation to determine contributions for yourself (this is the portion that generates your personal Saver's Credit on Form 8880).

Contributions must be made in cash; you cannot contribute property.

[annh89]

I've had a similar issue for weeks now.  CPA's, TTax & other tax software experts and IRS agent tell me my SEP IRA contribution should show up on Savers Credit form 8880 line 2.  I'm self employed - sole proprietor.  TT has a pop up box stating SEP ira qualifies for the Savers Credit.  I can do the math regarding form 8880.  I simply need my sep ira to show up on it.  We meet all the qualifications.  The IRS agent went through the entire interview process with me.  Is there an expert out there who has a solution?  

[dmertz]

TurboTax's behavior is correct and the CPAs and other tax software providing a different answer are incorrect.

Unless the SEP plan is a SARSEP established before 1997, all SEP contributions are employer contributions.  Only employee contributions to a workplace plan, not employer contributions, are qualifying contributions for the Retirement Savings Contributions Credit.  See IRS Pub 590-A Chapter 3 for details.

Note that although it is not recommended to mix SEP contributions and regular contributions to a SEP-IRA, it is  permissible to make a regular contribution to a SEP-IRA as long as you make it clear to the IRS custodian that the contribution is a regular contribution and not a SEP contribution.  (Making regular contributions to a separate ordinary IRA account completely avoids the potential error of the contribution being reported incorrectly on Form 5498.)  TurboTax's message that contributions to a SEP-IRA qualify for the credit only applies to regular contributions made to the SEP-IRA and salary reduction contributions made to a SARSEP.

If you qualify for a regular deductible traditional IRA contribution, you would do best to allocate your deductible contributions first as regular traditional IRA contributions and only after you've made the maximum permissible regular IRA contributions allocate any additional amounts as SEP contributions.