David Slade is a senior Post and Courier reporter. His work has been honored nationally by Society of Professional Journalists, American Society of Newspaper Editors, Scripps foundation and others. Reach him at 843-937-5552 or dslade@postandcourier.com

The FSA trade-off Flexible spending accounts can save money now, reduce Social Security benefits later (copy)

Most Americans aren't saving nearly enough for retirement. The Savers Credit can help. File/AP 

Most taxpayers are getting a federal check for $1,200 as part of the CARES Act coronavirus response, and some have an opportunity to turn that into more money.

As with many lesser-known tax breaks, this won't apply to most people, but for those who fit the rules it's a chance to turn $1,200 into as much as $1,800.

Here's how that works. The Savers Credit is a tax credit for people with moderate to lower incomes who contribute to retirement savings accounts. The size of the credit ranges from 10 percent to 50 percent of the amount, up to $2,000, contributed to a retirement account.

Some of the special circumstances this year, related to the coronavirus, could make it possible for more people to take advantage of it. Specifically:

  • The $1,200 in federal money gives people unexpected funds to potentially use. Of course, that's only helpful for those who don't immediately need that money to pay rent and other expenses.
  • Income tax returns aren't due this year until July 15, and 2019 contributions to retirement plans can also be made up to that date.  

So, someone eligible for the Savers Credit based on their 2019 income could contribute some or all of their $1,200 check to a retirement account and get up to half the money back as a tax refund.

Also, people who normally make too much to qualify, but will have less income this year, can plan ahead to claim the tax credit next year when they file tax returns for 2020. It's a subsidy to help people build retirement savings.

For those with incomes low enough to qualify for the tax credit, it's not easy to set money aside for retirement, but the tax incentive makes it worth considering. My income was low enough early in my career that I qualified for the Savers Credit many times, and I used it.

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Here's how it works:

  • First, for the relevant tax year you must be at least 18, not a full-time student, and not a dependent on another person’s tax return.
  • Next, you can't have an adjusted gross income of more than $32,000 if you're single, $48,000 if you're a head of household (typically single parents), or $64,000 if you're married. Those are the limits to get a 10 percent tax credit, and lots of married couples in South Carolina would qualify.

For a 20 percent tax credit the respective income limits are $20,750, $31,125 and $41,500. For the maximum 50 percent tax credit the limits are $19,250, $28,875 and $38,500. 

  • Finally, you get the tax credit by contributing up to $2,000 to a retirement plan, such as a traditional or Roth IRA or a 401(k) plan. ABLE account contributions also count if the beneficiary made the contributions. Remember, contributing to a traditional IRA also lowers one's adjusted gross income.

The $2,000 is a per-person limit, so a married couple could contribute $4,000 if half went into each partner's retirement plan.

For example, if a married couple earned $64,000 in 2019, they would be receiving $2,400 in CARES Act money. If they put that money into their retirement accounts, they could get a 10 percent tax credit on their 2019 tax return due in July, worth $240.

To get the maximum 50 percent tax credit, that couple would have to have had no more than $38,500 of adjusted gross income. In that case $1,000 set aside for retirement would get them $500 back on their tax return. The credit is claimed on Form 8880.

Reach David Slade at 843-937-5552. Follow him on Twitter @DSladeNews.