Unfortunately for some, the saver’s credit is a non-refundable tax credit. You can use it to help reduce the taxes you owe, but it doesn’t help increase your tax refund.
What's the saver’s credit?
The saver’s credit is a special tax credit provided to low- to moderate-income taxpayers who put some of their earnings aside for retirement. It was previously known as the retirement savings contributions credit.
For those who qualify, the program provides a nonrefundable tax credit of up to 50 percent (or $2,000) for contributions to a retirement savings plan such as an IRA (individual retirement account) or 401(k).
“In a nutshell, the saver’s credit is a tax credit that is intended to promote retirement savings among people who may find it hard to save,” CEO and president of the Transamerica Center for Retirement Studies Catherine Collison wrote in a guest blog post for Social Security Matters.
Who qualifies for the saver’s credit?
According to the IRS, to qualify for the saver’s credit, you must be 18 or older, not a student, and not claimed as a dependent on someone else’s tax return. You must also have income within the set income limits.
What are the income limits for the saver’s credit?
To be eligible for the 50 percent credit for your 2021 taxes, individual taxpayers must have an adjusted gross income of $19,750 or less. Married couples filing jointly must have a household income of $39,500 or less to qualify.
The more taxpayers earn, the less credit they receive. An individual earning up to $21,500 can claim a 20 percent credit, while individuals earning up to $33,000 can claim a 10 percent credit.
For example, Jill is an individual taxpayer who made $19,000 in 2021. She also contributed $1,000 to an IRA during the year. After deducting the IRA contribution, her adjusted gross income is $18,000. She can claim a 50 percent credit of $500 on her 2021 tax return.
Individual taxpayers earning more than $33,000 and married taxpayers earning more than $66,000 aren't eligible for the saver’s credit. The income limits for 2022 are slightly higher than 2021's.
How do you get the saver’s credit?
To get the saver’s credit, taxpayers must fill out IRS Form 8880 (“Credit for Qualified Retirement Savings Contributions”) and include the form with their 2021 tax return. This form will help you calculate the amount of credit you can receive based on the income you reported on Form 1040, 1040-SR, or 1040-NR, and your contributions to your retirement savings plan. Rollover contributions are not included.
What are the proposed changes to the saver’s credit?
House Democrats are trying to make some changes to the saver’s credit program to increase income eligibility requirements and allow for up to $500 of the credit to be refundable for some taxpayers, CNBC reports.