THE RETIREMENT SAVER’S CREDIT, SOCIAL SECURITY, AND YOUR TAX RETURN

[My Northern Wisconsin]

   

By:  Davette Lynne Hrabak, CPA, CFE, CBM, ATA, ATP, ABA, ARA, CGMA, https://www.DavetteLynneHrabak.com
“When it comes to taxes, save the lion’s share; enter between the lions to get this special care.”

Whether you are saving for retirement or retired, there is important information you need to know for the preparation of your taxes.

2025 TAX YEAR RETIREMENT SAVER’S CREDIT

The Retirement Saver’s Credit is available in 2025 to various taxpayers who fit into the proper criteria and who make eligible contributions.  It is a non-refundable credit which allows for a taxpayer to receive a non-refundable credit of up to $2,000 for a Married Filing Jointly Tax Status and up to $1,000 for a Single or other filing Tax Filing Status.

Many taxpayers are surprised to learn that they have contributions that count for this credit.

Qualifying taxpayers must be at least 18 years old by the end of the year, not be claimed as a dependent on another taxpayer’s tax return, and cannot be a full-time student.

The Retirement Saver’s Credit is also subject to phase-outs, which vary depending on a taxpayer’s filing status and Adjusted Gross Income amounts.  If a taxpayer lands in the proper range, then the taxpayer would be eligible to receive from 10 to 50 percent of their contributions back up to a maximum allowed by their filing status.

There are also rules on eligible contributions and some reductions of some eligible contributions, but, overall, many taxpayers are able to use this credit.

2025 TAX YEAR TIP:  QUICK RETIREMENT TAX FACTS

Each year the IRS releases and revises various limits for various retirement type accounts, some of which are listed below:

IRA Contribution Limits:
Under Age 50:  $7,000
Age 50 or Older:  $8,000

Elective Deferral Limits On:

Simple IRA Plan:
Under Age 50:  $16,500
Age 50 through 59:  $20,000
Age 60, 61, 62, or 63 in 2025:  $21,750

401(K), 403(B), and 457 Plans:
Under Age 50:  $23,500
Age 50 through 59:  $31,000
Age 60, 61, 62, or 63 in 2025:  $34,750

Profit-Sharing Plan/SEP:
Contribution Limit:  $70,000
Compensation Limit:  $350,000 (for computing employer contributions)

Each person’s tax situation is unique.  There are a variety of plans out there; the above list is not all inclusive but provides some information on some of the most common ones.  Each person’s tax situation must be looked at on a case-by-case basis for each taxpayer; rarely are any two taxpayers’ situations identical.

WHAT YOU NEED TO KNOW ABOUT SOCIAL SECURITY AND YOUR TAXES - NEW LIMITS FOR 2025

Social Security and Medicare are not just about retirement; they also have tax issues for individuals and businesses.

Each year, the maximum amount of earnings that is subject to Social Security Tax and Medicare Tax changes.

For 2025, the maximum amount of earnings subject to Social Security Tax was $176,100 and for 2026 it will be $184,500.

For 2025 and 2026, the maximum earnings subject to Medicare Tax is unlimited.

A very common question that many people have as they are nearing retirement, and when they are in the first year of their retirement, is, “What is the maximum amount of earnings that I can make and still receive my full Social Security benefits?”

For 2025, you could have made $23,400 if you were under the full retirement age at December 31, 2025.  For 2026, if you are under the full retirement age at year’s end, you can make $24,480.  However, if it is the year in which you reach full retirement age, for the months leading up to full retirement age only, you could have made $62,160 for 2025, and you can make $65,160 for 2026.  Further, in the month that full retirement age is reached and later, there is no limit to the amount you can earn and still receive full benefits.

Just because you can earn as much as you like and still get your full benefits once you hit full retirement age, you still have to pay taxes on any portion of your Social Security that is taxable, just like you did in years before you hit your full retirement age.  The rules are for a calculation of reduction of benefits, not a reduction of taxes.

Remember, if you have already filed but realize that you could have had a credit or deduction that you missed, it is not too late; you can always amend your return.  If you need more information or believe you could qualify for them, call Davette at 715-339-6638 for a free, no obligation quote.  Her office is located between the lion statues at 164 South Lake Avenue in Phillips.


Davette Lynne Hrabak, CPA, located at 164 South Lake Avenue in Phillips, specializes in tax return preparation, business start-up services, consulting, bookkeeping, payroll, and all your accounting needs.  Call <a href="tel:715-339-6638">715-339-6638</a> or visit <u><a href="https://www.DavetteLynneHrabak.com" target="_blank">Davette's website</a></u>.  Follow her <u><a href="https://www.facebook.com/davettelynnehrabak" target="_blank">Facebook page</a></u>.