BY EDMUND E. BROBESONG
In the Economic Growth and Tax Relief Reconciliation Act of 2001, Congress added Section 25B to the Internal Revenue Code. As initially enacted, this credit was equal to 10%, 20% or 50% of contributions made by eligible taxpayers to a qualified retirement plan. For this purpose, a qualified retirement plan included a 401(k) plan, a traditional Individual Retirement Account or a Roth IRA.
However, this new saver’s tax credit did not apply to contributions above $2,000. Furthermore, the tax credit was non-refundable. Generally, the tax credit did not apply to taxpayers with modified adjusted gross income above $25,000. For a taxpayer claiming head of household status, the income threshold was $37,500. For married taxpayers filing a joint return, the income threshold was $50,000.
As initially enacted, the saver’s tax credit was applicable for tax years beginning after Dec. 31, 2001. Furthermore, the tax credit was set to expire after Dec. 31, 2006. However, the Pension Protection Act of 2006 made the saver’s tax credit permanent (prior to expiration).
For the year ended Dec. 31, 2019, the tax credit does not apply to taxpayers with modified adjusted gross income above $32,000. For taxpayers claiming head of household status, the income threshold was $48,000. For married taxpayers filing a joint return, the income threshold was $64,000. Taxpayers who claim the saver’s tax credit must attach Form 8880 (where the credit is computed) to their income tax returns.
For tax years beginning after Dec. 31, 2001, this saver’s tax credit has been part of the Internal Revenue Code. Therefore, this retirement credit also has been part of Mirror Code that applies in Guam as the income tax law of Guam. However, taxpayers in Guam eligible for this saver’s tax credit should be reminded that Guam’s Department of Revenue and Taxation previously denied the earned income credit to eligible Guam taxpayers.
Indeed, the department officially issued Revenue Ruling 96-001 disallowing the EIC to Guam taxpayers. Furthermore, the department vigorously defended its tax position on the EIC issue until it lost in the Guam courts. This time, Rev&Tax may not publicly announce its denial of the saver’s tax credit to Guam taxpayers. Instead, it could simply omit the tax credit from any income tax.
Hopefully, an attorney in Guam would once again rise to the challenge and take the department to task in the Guam courts if it is determined that the Rev&Tax has denied the saver’s tax credit to eligible Guam taxpayers.
In general, the refund claim period is three years after the tax return is filed. Thus, recovery of any amounts from the government of Guam may not be possible beyond the past three years. Sadly, many in the class of Guam taxpayers eligible for the saver’s tax credit may lack the means to fight the department on the issue. mbj
— Edmund E. Brobesong is the senior manager of the tax group at Ernst & Young, Guam. He can be reached at [email protected]