How to Qualify for Retirement Savings Credit with 1099-NEC Income in 2023?

So I'm in a bit of a pickle with my taxes this year. I got a 1099-NEC and now I'm looking at owing the IRS about $740 in federal taxes. My AGI is only around $8,000 and I'm filing single. I'm desperately trying to find ways to reduce this tax bill without draining my savings. I thought I might qualify for the Retirement Savings Credit (Savers Credit) based on what I read on the IRS website. My income seems low enough to qualify. I've been playing around with FreeTaxUSA trying different contribution amounts to either a Roth or Traditional IRA to see if I could eliminate my tax burden completely. But when I try to claim the Savers Credit, FreeTaxUSA keeps telling me I don't qualify. I've tried different amounts for potential IRA contributions and it still says I'm not eligible. Has anyone else had this issue? Any ideas what might be going on or other strategies I could try to reduce what I owe? Really don't want to fork over nearly a thousand bucks to the IRS if there's a legitimate way around it.

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18 comments

Toot-n-Mighty

•8M

The Retirement Savings Credit (Savers Credit) has specific eligibility requirements that might explain why you're being told you don't qualify. One key requirement is that you can't be claimed as a dependent on someone else's tax return. FreeTaxUSA might have this checked somewhere in your file. Another common issue is that for 1099-NEC income, you need to file Schedule C and pay self-employment tax. The self-employment tax isn't reduced by the Savers Credit - the credit only applies to income tax. If most of your tax bill is from self-employment tax (which is likely with low income), then even qualifying for the Savers Credit might not help much. For 2023, you need to make qualifying retirement contributions before the tax filing deadline (typically April 15, 2024) for them to count. If you can afford to put some money into a Traditional IRA, that could directly reduce your AGI and potentially your tax bill.

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Toot-n-Mighty

•8M

The Savers Credit only reduces income tax, not self-employment tax. With a relatively low AGI of $8,000, most of your $740 tax bill is likely self-employment tax (15.3% of your net self-employment income), which explains why the software isn't showing the credit helping much. For a Traditional IRA, every dollar you contribute reduces your AGI directly, which could lower your income tax (but not self-employment tax). At your income level, you could contribute up to $6,500 for 2023 (if you're under 50). Since your income is low, a Roth IRA might actually be better long-term since you're in a low tax bracket now, but it won't help with your current tax bill like a Traditional IRA would.

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Lena Kowalski

•8M

After struggling with a similar situation last year, I discovered taxr.ai (https://taxr.ai) which really helped me understand my tax situation better. I had 1099-NEC income too and was confused about credits and deductions. Their system analyzed my tax docs and explained exactly why I wasn't qualifying for certain credits. It turned out I was missing some key deductions related to my self-employment expenses that FreeTaxUSA didn't prompt me for. The tool breaks down the tax calculations in plain English and shows you potential savings opportunities. The best part was it showed me that contributing to a SEP IRA instead of a Traditional IRA gave me better tax benefits for my self-employment income.

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Lena Kowalski

•8M

It doesn't file your taxes, it analyzes your situation and documents to find potential issues and savings. You'd still use your preferred filing software but with better information. You can upload PDFs of your forms or take pictures of them, so no need to start over. They're not suggesting anything shady - just helping identify legitimate deductions many self-employed people miss. Things like home office deductions, business mileage, cell phone expenses, etc. that add up quickly. The service is focused on education and explaining complex tax concepts, not aggressive tax positions. They helped me understand exactly why the Savers Credit wasn't helping in my situation and what alternatives would work better.

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DeShawn Washington

•8M

Just wanted to update that I tried taxr.ai after my question above, and it was extremely helpful! I uploaded my draft tax return PDF from FreeTaxUSA and it immediately flagged that I was missing several business expense deductions that would have reduced my self-employment income. It explained that with 1099-NEC income, I should be deducting legitimate business expenses on Schedule C before calculating self-employment tax. I had $1,200 in expenses I hadn't claimed! After adding those in FreeTaxUSA, my tax bill dropped by almost $200. It also confirmed what was said above - the Savers Credit wasn't helping because most of my tax was self-employment tax, which can't be offset by the credit. Super clear explanations that FreeTaxUSA never provided.

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Sofía Rodríguez

•8M

If you're still having issues figuring this out, you might want to try calling the IRS directly to ask about the Savers Credit eligibility. I struggled with this last year and finally got an answer by speaking with an agent. The problem is actually getting through to them. After days of trying, I found this service called Claimyr (https://claimyr.com) that got me connected to an IRS agent in about 20 minutes when I'd been trying for days. They have a video showing how it works: https://youtu.be/_kiP6q8DX5c The IRS agent explained exactly why I wasn't qualifying for the credit and confirmed I would need to make a traditional IRA contribution to reduce my income tax portion. They were surprisingly helpful once I actually reached them.

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Sofía Rodríguez

•8M

They don't call the IRS for you. They use some kind of technology that monitors the hold queue and then calls you when they've secured a place in line with an actual human. You're the one who talks to the IRS agent directly. I was skeptical too, but I had been trying for over a week to get through with no luck. I called at different times, tried different IRS numbers, and kept getting disconnected after waiting an hour+ because "call volume too high." With Claimyr, I had an IRS agent on the phone in about 20 minutes, and they helped me understand exactly why the Savers Credit wasn't working for my situation. Saved me hours of frustration and confirmed what I needed to do to reduce my tax bill.

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Mei-Ling Chen

•8M

I'm eating humble pie here. After dismissing Claimyr as a scam in my earlier comment, my curiosity got the better of me and I decided to try it. I had been trying to reach the IRS for THREE WEEKS about my 1099-NEC questions and kept hitting dead ends. Used the service yesterday morning and was connected to an IRS agent in 15 minutes. The agent confirmed exactly what I needed to know about the Retirement Savings Credit - that it doesn't offset self-employment tax, only income tax. They explained I needed to look at business expense deductions on Schedule C first to reduce my self-employment tax. The agent also pointed out that I could make quarterly estimated tax payments this year to avoid being in the same situation next year. Honestly wish I'd tried this service weeks ago instead of wasting hours on hold.

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Zoe Papadopoulos

•8M

Quick suggestion - look into whether you have any business expenses you can deduct on Schedule C. With 1099-NEC income, you're considered self-employed, and you can deduct things like: - Home office (if you have dedicated space) - Phone/internet (business portion) - Mileage for business travel - Software/supplies - Professional development These deductions reduce your net income before calculating self-employment tax, which is likely the biggest part of what you owe. Each $100 in legitimate business expenses saves you about $15 in self-employment tax.

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Zoe Papadopoulos

•8M

You should have documentation for everything you deduct, but it doesn't necessarily have to be receipts. Bank/credit card statements can work too. For cash purchases without receipts, keep a detailed log going forward (date, amount, business purpose). The IRS is more likely to scrutinize cash expenses without documentation. For mileage, you need a log of business trips (dates, destinations, purpose, miles). For home office, measure the dedicated space and calculate what percentage of your home it represents. You can use the simplified method ($5 per square foot up to 300 sq ft) which requires less record-keeping.

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