IRS Form 8880

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IRS Form 8880

Taxpayers use the form to figure the amount of their potential tax credit (also called a saver’s credit). That amount is based on the calculation of the sum of contributions to the retirement savings account. IRS developed this opportunity to encourage individuals with lower income to make contributions to their retirement accounts. This offer makes sense because the tax credit reduces the amount of tax that the individual must pay to the IRS. You can use the form to get a full report on the contributions that you made to your retirement bank account, and this number will be the primary point for the withdrawal of the tax credit.

It is important to note that Form 8880 is an appendix to IRS Forms 1040, 1040-SR, or 1040-NR. So, taxpayers can not submit this application separately, but only in a set of documents. It may seem quite difficult to figure out this tax application system and clarify how Form 8880 works. Our review deals with such topical issues as how these forms relate to each other, who can claim a tax credit, and how to fill out the form step by step.

Who can take credit?

Taxpayers who make contributions to the retirement account according to the general retirement plan can expect to receive it. So if you have deposited certain amounts into your retirement account this year, you are eligible to apply for an additional tax credit. Please note that this type of credit is a non-refundable loan. This means that it reduces taxes but does not be refunded if taxes are already paid in full. Let’s look at the cases when the applicant is most likely to receive a tax credit. The official instruction that follows Form 8880 lists all the methods, so here we will highlight the main four cases:

Contributions to a traditional or Roth IRA.

Contributions you make to a Traditional Individual Retirement Account (IRA) may be partially or fully deductible from taxes. A Roth IRA is a special retirement account where you pay taxes on the money coming into your account, and then all subsequent withdrawals are tax-free.

The form warns that you can’t consider so-called rollover contributions, i. e., contributions made by transferring funds from one retirement account to another one. In other words, only the money that the bank considers as an increase in income is counted.

Elective deferrals.

A person can count on a tax credit if they paid contributions to the tax account from their salary. Many employers offer this option, and some companies have a mandatory deferral plan. The amount of deferral is often determined by the payer himself, so deferrals are a common way to increase a retirement account. In these cases, a number of tax plans work, and you need to choose the one that your employer applies. It can be:

  • 401(k) plan the most widespread for retirement contributions to the private tax system.
  • 403(b) plan that is used for government organizations, some medical companies, and noncommercial businesses.
  • A SIMPLE plan that is suitable as a starter retirement plan for small businesses that do not yet sponsor retirement benefits under a 401 (k) or 403 (b).
  • Simplified Employee Pension (SEP) also operates in the small business sector and, unlike other plans, does not provide Roth or after-tax contributions.
  • Governmental 457 is tax-based retirement savings account for government offices, police, firefighters, and other government employees.

Voluntary employee contributions.

This is the designation for additional contributions that the employee makes to the retirement fund in excess of the minimum obligatory contributions. If you have made excessive contributions to your retirement account, you can also apply for a tax credit.

Contributions to a 501(c)(18)(D) plan.

Type 501 (c) organizations are non-profit companies that are exempt from certain types of federal taxes. Chapter 18 governs the employees’ pension fund. It aims to regulate the payment of employee benefits under the pension plan.

Above, we have considered the main four cases when a taxpayer can apply for a tax credit, and the IRS is likely to approve this application. Please note that the filler cannot be a student and a person under the age of 18, as well as have the status of a dependent.

The official instruction for Form 8880 provides legal justification in detail and contains references to the laws governing the Form. Therefore, if you want to learn more about the documents, we recommend that you read the instructions. The next topic of our review will briefly describe the IRS forms for which Form 8880 is an application.

As the header indicates, this Form is an attachment to Form 1040, 1040-SR, or 1040-NR. IRS Form 1040 is a standard federal income tax form for reporting taxes, claiming tax deductions and credits, and calculating tax refunds for the year. Form 1040-SR has exactly the same legal options but is designed for people aged 65 and above. The difference between Form 1040-NR is that its filler is a foreigner, a representative of the deceased, or a trust who intended to submit the Form but for some reason failed to do that. Since requesting a tax credit is one of the functions of these forms, each of them requires the application of Form 8880 when filing.

Other IRS Forms for Individuals

If the IRS Form 8880 is not what you need, you might want to check some other IRS forms that might fit your particular situation.

How to Fill Out Form 8880

When filling out the form, you need to make some calculations. The amounts to be calculated are contained in the form to which Form 8880 is attached. You can download the file from the official IRS website or fill the document out using our online form builder, so you do not have to print it out. Follow the short instruction to complete the paper:

Enter identification data.

Fill in the first line at the header. Specify your name and social security number.

step 1 enter identification data filling out irs form 8880

Calculate the contributions.

Write the contributions amount according to the type of your retirement saving account. Remember not to include rollover contributions. Add up the sums you wrote on line 1 and line 2. Enter the numbers in the table.

step 2 calculate the contributions filling out irs form 8880

Specify the distributions.

Give certain distributions within the period specified in the form, namely from 2017 to the expiration of your tax return. If you requested a prolongation of the return, consider the extension period. Subtract the distributions from the total contribution amount (line 3) and write the amount in the table next to item 5.

step 3 specify the distributions filling out irs form 8880

Indicate a smaller amount.

Line 6 requires you to specify the sum that does not exceed the amount on line 5.

step 4 indicate a smaller amount filling out irs form 8880

Calculate the total.

Add the sums from line 6, both columns, and enter the total. Please note the Form warning that if you wrote “zero” on line 7, you cannot get a tax credit.

step 5 calculate the total filling out irs form 8880

Enter the sum from the main form.

On line 8, specify the amount from the Form to which you attach Form 8880.

step 6 enter the sum from the main form filling out irs form 8880

Calculate the index.

Given the amount you have just written and your status shown in the table below, find a match and enter the index on line 9. Again, note the warning that if you wrote “zero” here, the IRS does not approve the tax credit.

step 7 calculate the index filling out irs form 8880

Calculate the sum.

On line 10, write the sum from multiplying the sum of line 7 by the index of line 9.

step 8 calculate the sum filling out irs form 8880

Define CLW.

In order to correctly calculate the Credit Limit Worksheet (CLW) that you need to specify on line 11, refer to the instructions:

step 9 define clw filling out irs form 8880

Determine credit amount.

Enter the smaller from line 10 or 11. Duplicate the information on line 4 of Form 1040.

step 10 determine credit amount filling out irs form 8880

Submit Form 8880 as an attachment to one of the 1040 forms in the same way, i.e., by email or via Post Office Boxes.