What Is the Savers Tax Credit?

The Saver's Credit is also known as the Retirement Savings Contributions Credit. This provides a tax credit that allows taxpayers to reduce their tax liability based on contributions to a qualified retirement savings account, such as an IRA or 401(k). The amount of the credit is based on your adjusted gross income (AGI) and your filing status.

How the Savers Tax Credit Works

The credit is designed to encourage low to moderate-income taxpayers to put money into retirement savings accounts. For 2021, the maximum contribution amount that can qualify for the credit is $2,000, or $4,000 if married and filing jointly.

The amount of the Savers Credit depends on the taxpayer's income, the level of the contribution, and the taxpayer's filing status. Depending on your income, the credit is 50%, 20%, or 10% of your retirement contributions.

For example, in 2021, a single filer with not more than $20,500 AGI could claim a 50% credit for up to $2,000 in contributions. An income of more than $20,500 and up to $22,000 is eligible for a 20% credit. However, if a single filer earned more than $34,000, they would not be eligible for the saver's credit.

Qualifying Saver's Tax Credit Accounts

The credit is available for qualifying types of retirement plans, including:

• Traditional or Roth IRA
• Elective contributions to a 401(k), 403(b), 457(b), SARSEP, or SIMPLE plan
• ABLE account for which the taxpayer is the designated beneficiary

To learn more about which contributions are eligible for the Savers Credit, see the instructions for IRS Form 8880.

Savers Tax Credit: Additional Requirements

Even if a taxpayer's income falls within the range of eligibility for the Savers Credit, there are other requirements that the taxpayer must meet before claiming the credit on their tax return. For instance, a taxpayer claiming the credit must be over 18 years of age, cannot be a full-time student, and no one else can claim the taxpayer as an exemption on their own return.

Some students may be eligible if they work full-time as a student at a school or take a full-time, qualifying on-farm training course.

Taxpayers must also subtract the amount of any distributions they receive from the account during the tax year from the amount of contributions that they claim.

Tax Law Advice

Tax laws can be complicated and tax rules keep changing. If you need help with your tax issues or owe money for unpaid taxes, you can call an experienced tax attorney for advice.