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Saver’s Credit | Eligibility, Income Limit, Qualify Plans, Form 8880 & How to Claim ?

Retirement Savings Contributions Credit (Saver’s Credit)


What is Retirement Savings Contributions Credit (Saver’s Credit) ?


A federal income tax credit known as the Retirement Savings Contributions Credit was created to help people with poor and modest incomes start retirement savings. The credit, which is sometimes referred to as the "Saver's Credit," ranges from 10% to 50% of your annual contributions up to a specified amount.

Low- and moderate-income taxpayers who are putting money down for retirement are given a special tax benefit through the Savers Credit. Taxpayers who make salary-deferral contributions to their employer-sponsored 401(k), 403(b), SIMPLE, SEP, or government 457 plan, as well as contributions to their regular or Roth IRAs, are eligible to claim the saver's tax credit, a non-refundable tax credit.

Your adjusted gross income (AGI) and federal income tax filing status determine the credit amount and the portion of your donations you are eligible to claim as a credit. The additional tax advantages for saving in a retirement account are in addition to this credit. A Savers Credit may be able to lower or even eliminate your tax obligation if you are eligible.

Nonrefundable indicates that the credit cannot be greater than the recipient's yearly federal income tax. For solo tax filers, the maximum credit is $1,000, while for married couples filing jointly, it is $2,000 maximum credit.

Key Facts of Saver’s Credit


  • Taxpayers who make contributions to specific defined-contribution plans and IRAs are eligible to claim the saver's tax credit.
  • The saver's tax credit is a non-refundable tax credit with a maximum value of $1,000 and a range of 10% to 50% of the individual taxpayer's qualified contribution of up to $2,000 in total.
  • The maximum credit is equal to the lesser of $1,000 or the amount of tax the taxpayer would have owed if the credit hadn't been available.
  • A part of your contributions to an eligible retirement or ABLE savings account are eligible for the retirement savings contributions credit.
  • You must meet income requirements, be over 18, not be anyone's dependent, and not be enrolled in school in order to be eligible for the credit.

How Does the Saver's Credit Works ?


The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) put the saver's tax credit into law for tax years 2002 to 2006, and the Pension Protection Act of 2006 (PPA) made it permanent. The saver's tax credit is a non-refundable tax credit with a maximum value of $1,000 and a range of 10% to 50% of the individual taxpayer's qualified contribution of up to $2,000 in total. Additionally, the maximum credit is limited to $1,000 or the amount of taxes the taxpayer would have owed if the credit hadn't been available.

This simply means that the tax credit is non-refundable, meaning it can only reduce the taxpayer's tax bill to zero and not result in a refund. The saver's tax credit is not refundable but can be used to reduce income tax obligations. The taxpayer cannot include in refundable credits or the adoption credit when calculating the amount of the saver's tax credit. The taxpayer must be 18 years old by the end of the tax year, not be enrolled in school full-time, and not be claimed as a dependent on another taxpayer's return in order to be able to receive the saver's tax credit.

You may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan. And, beginning in 2018, if you’re the designated beneficiary, you may be eligible for a credit for contributions to your Achieving a Better Life Experience (ABLE) account.

Who is Eligible for Saver’s Credit ?


The following individuals are qualified for the Retirement Savings Contributions Credit (Saver's Credit) :
  • Over the age of 18
  • Not listed as a dependent on a tax return of another person.
  • Not a student.
  • Have contributed to your retirement during the tax year for which your return is being filed.

If any of the following occurred during the course of five calendar months of the tax year :
  • Were a full-time student enrolled in a school.
  • Enrolled in a full-time, on-farm training programme offered by a school or a federal, state, local, or tribal government agency.
  • Technical, trade, and mechanical schools are all types of schools. On-the-job training programmes, correspondence programmes, and colleges that only offer courses online are not included.

However, it doesn't guarantee you'll get it because you still need to contribute to an IRA or retirement plan and meet the IRS-imposed annual limits on maximum adjusted gross income.

Which Retirement Contributions Qualify for the Savers Credit ?


When claiming the Retirement Savings Contributions Credit, contributions to practically any kind of retirement plan are admissible, including those made to :
  • 401(k) Plan
  • Traditional or Roth IRA
  • 403(b) Plan
  • 457(b) Plan
  • SARSEP or SIMPLE Plan
  • Thrift Savings Plan
  • 501(c)(18)(D) Plan
  • Achieving a Better Life Experience (ABLE) account for which you are the designated beneficiary
Rollover contributions, on the other hand, which are funds you transfer from one retirement plan to another, are not qualify.


What are the Income Limits for Saver's Credit ?


Your AGI, which is determined by your filing status, is the cap on the Saver's Credit. Your adjusted gross income (AGI) is your gross income less adjustments to income such alimony payments, student loan interest, and teacher expenses. You can claim a tax credit for 0% to 50% of your contributions, depending on your income. You lose eligibility for the credit for the 2022 tax year (the return you will submit in 2023) if your AGI exceeds :
  • If you are unmarried, married filing separately, or a qualified widow(er), your filing status is $34,000. 
  • If head of household, your filing status is $51,000.
  • If you are married filing jointly, your filing status is $68,000.

Who is Not Eligible to Claim the Saver's Credit ?


Saver's Credit is Not Available to Dependents and Students. The saver's credit is not available to anyone under the age of 18 or those who are listed as dependents on another person's tax return. Students in technical, trade, and mechanical schools cannot receive the credit, nor can anyone who is enrolled full-time for five or more months of the academic year. However, you won't be prevented from claiming the saver's credit if you take online classes or participate in on-the-job training.

How Much Could the Savers Credit Cut From Tax Bill?


Depending on your adjusted gross income and tax filing status, you can claim the credit for 50%, 20% or 10% of the first $2,000 you contribute during the year to a retirement account. Therefore, the maximum credit amounts that can be claimed are $1,000, $400 or $200. The Savers Credit is a 'non-refundable' tax credit. That means this credit can reduce the tax you owe to zero, but it can't provide you with a tax refund.

How Much is the Saver's Credit ?


The saver's credit is worth up to $1,000 ($2,000 if married filing jointly). Keep in mind that a credit is not the same as a tax deduction. A tax deduction just reduces the amount of your income that is subject to taxes, a tax credit reduces your actual tax bill dollar-for-dollar. Use the chart below to calculate your credit.

Saver's Credit for Tax Year 2022

Single, married filing separately, or qualifying widow(er)

Credit Rate

Married Filing Jointly

Head of Household

All Other Filers*

50% of your contribution

AGI not more than $41,000

AGI not more than $30,750

AGI not more than $20,500

20% of your contribution

$41,001- $44,000

$30,751 - $33,000

$20,501 - $22,000

10% of your contribution

$44,001 - $68,000

$33,001 - $51,000

$22,001 - $34,000

0% of your contribution

more than $68,000

more than $51,000

more than $34,000


How to Calculate Saver’s Credit ?


Your contributions to a regular or Roth IRA, 401(k), SIMPLE IRA, ABLE account, SARSEP, 403(b), or 457(b) plan are used to determine the value of the saver's credit. Depending on your filing status and adjusted gross income, you can be qualified for 50%, 20%, or 10% of the maximum contribution amount. The contribution must be brand-new cash in order to be eligible for the saver's credit. Your tax credit is calculated as a portion of your retirement contributions.

Let's say you make $19,000 as a single filer and put $1,000 into an account that qualifies. Your saver's credit would be worth $500. Due to the cap, even if you were able to donate $5,000 to an eligible account, your credit would only be worth $1,000.

Your taxable income would also be decreased by the amount of your contribution if it were made to a traditional IRA, 401(k), or other account that provides a tax deduction for contributions.

How to Claim the Saver's Credit ?


Use Form 8880, "Credit for Qualified Retirement Savings Contributions", to claim the Retirement Savings Contributions Credit.

Fill out IRS Form 8880 in order to claim the Saver's Credit on your federal income tax return. Transfer the amount from line 12 to line 4 of Schedule 3. The total of all nonrefundable credits that you are eligible for should then be transferred from line 7 of Schedule 3 to line 20 of your Form 1040. Your tax return should also include Schedule 3 and Form 8880.

If you use tax preparation software, it will ask you about your retirement funds and can automatically fill out these forms for you. Depending on the method you choose, they will then be printed or e-filed along with your complete return.

Note :
  • For tax years prior to 2018, you can only claim the Savers Credit if you file your federal tax return using form 1040A, 1040, or 1040NR (not supported in TurboTax). The instructions for Form 1040EZ contain information about the Savers Credit, but they also lead you to a different form. It is not deductible on Form 1040EZ.
  • Forms 1040EZ and 1040A are no longer utilised as of 2018. New versions of the 1040 and 1040-SR forms have taken their place.

FAQ's


How does Retirement Savings Contributions Credit help?
The saver's credit can reduce your taxes when you save for retirement.

Is your refund increased by the savers credit?
The Saver's Tax Credit is a non-refundable tax credit, thus it merely lowers the potential tax liability for you and does not result in a bigger tax refund.

Get a tax credit for making 401(k) contributions?
Your contributions to a qualifying 401(k) may reduce your tax liability even further through the Saver's Credit depending on your income and filing status. The amount you contribute to your 401(k) directly reduces your tax due to the saver's credit (k).

Can you claim the Saver's Credit plus an IRA deduction?
The Saver's Tax Credit applies to both standard and Roth IRA contributions. Employees who are eligible to deduct IRA contributions may do so and be eligible for the credit. The Saver's Tax Credit is also applicable to voluntary after-tax payments made to a 403(b) annuity or qualified retirement plan.

Must I claim the saver's credit on my taxes?
For the Saver's Tax Credit, taxpayers who make contributions to IRAs, ABLE plans, or qualified employer-sponsored retirement plans must submit IRS Form 8880.

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