What Is the Savers Tax Credit?

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

The Saver's Credit is a tax credit that operates differently than a tax deduction. A tax deduction reduces the amount of your income that is subject to tax. A tax credit is a dollar-for-dollar reduction of your tax bill. Thus a $1 tax credit is generally more valuable than a $1 tax deduction.

How the Savers Tax Credit Works

The credit is a tax break designed to encourage low to moderate-income taxpayers to put money into retirement savings accounts. For 2023, the maximum contribution amount that can qualify for the credit is $2,000, or $4,000 if married and filing jointly. Only new contributions are eligible, so rollovers from existing retirement accounts don't qualify.

The amount of the Savers Credit depends on the taxpayer's income, the size of the contribution, and whether you are filing as single, married filing jointly, or head of household. Depending on your income, the maximum credit is 50%, 20%, or 10% of your retirement contributions. The Saver's Credit is a non-refundable tax credit, which means that you can't claim a refund for the difference if it is larger than the tax you owe.

For example, in 2023, a single filer with an AGI of up to $21,750 could claim a 50% credit for up to $2,000 in contributions. The contribution limits and income amounts are generally doubled for married couples. An individual with an income of more than $21,750 and up to $23,750 is eligible for a 20% credit. However, if a single filer earned more than $36,500, they would no longer qualify for the saver's credit. The Internal Revenue Service (IRS) adjusts the contribution and income limits annually for inflation.

Fortunately, most tax filing software has built-in calculators that determine whether you are eligible for the Saver's Credit and the credit rate for your income.

Qualifying Saver's Tax Credit Accounts

The credit is available to eligible taxpayers making contributions to qualifying types of retirement plans, including:

• Traditional IRA or Roth IRA contributions
• Elective contributions to qualified retirement plans, such as 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, Credit for Qualified Retirement Savings Contributions.

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 a dependent on their return.

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

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

Still Have Questions? Talk to a Tax Lawyer

If you need help with tax preparation or claiming the Saver's Credit, a local tax attorney can help. Tax lawyers can also help you determine if you qualify for additional tax benefits often overlooked by taxpayers, such as the child tax credit or the earned income tax credit.