If you've been on the fence about contributing to a retirement account, you may have a change of heart after you dive into the Saver's Credit. It's a lesser-known tax credit available to low-and-moderate income earners who contribute to a qualifying retirement account. You can earn a Saver's Credit worth up to $1,000 if you're single and $2,000 if you're married and filing jointly.
Below, we review the Saver's Credit qualifications and requirements so you don't leave money on the table.
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Behind the scenes of the Saver's Credit
If you are a freelancer, self-employed, or gig worker, you may end up owing the IRS.
The Saver's Credit, formerly known as the Retirement Savings Contributions Credit, can help you slash your tax bill. It may wipe away a portion or all your tax obligations, depending on how much your credit is worth. If you are single, you can earn a credit worth up to $1,000. But if you are married, your credit can be as much as $2,000. Since the credit is nonrefundable, you can't use it to boost your tax refund.
Let's say you are single, and your total tax bill is $700. If you qualify for a $1,000 Saver's Credit, your tax bill will instantly disappear. However, you won't get a tax refund of $300 since the credit is nonrefundable.
Not everyone will qualify for a Saver's Credit, though. For starters, you must be 18 or older and not listed as a dependent on someone else's tax return. If you are considered a student in the eyes of the IRS, you also won't qualify.
Contribute to a qualified retirement account to claim your credit
You may be closer to the Saver's Credit than you think. Many people have no idea that their retirement account contributions may put them in the running for a tax credit. If you've contributed money to any of the qualified retirement accounts below, you may have a shot at claiming the Saver's Credit.
- 401(k)
- 403(b) or governmental 457(b) plans
- Roth IRA
- Thrift Savings Plan
- Traditional IRA
Although the deadline has passed to contribute to most retirement accounts, there's still time to add money to a Roth or traditional IRA for 2022. If you contribute money before the tax filing deadline, your contributions would qualify you for the 2022 Saver's Credit.
You can claim your Saver's Credit by completing Form 8880 (Credit for Qualified Retirement Savings Contributions) when you're ready to file your tax return.
Check your Saver's Credit eligibility every year
The Saver's Credit is designed to encourage low-and-moderate income earners to tuck away money for retirement. If your income exceeds the annual limit, you won't qualify for the credit.
Your credit is based on your adjusted gross income (AGI) and filing status. You may qualify for a credit worth 50%, 20%, or 10% of your retirement account contributions, depending on where your income lands. However, the maximum credit you can earn is $1,000 (single) or $2,000 (married filing jointly).
Take a look at the Saver's Credit table below for the 2022 tax year to determine which bucket your income falls in.
|
AMOUNT OF YOUR TAX CREDIT BASED ON INCOME AND FILING STATUS |
MARRIED FILING JOINTLY (AGI) |
HEAD OF HOUSEHOLD (AGI) |
ALL OTHER FILERS (AGI) |
|---|---|---|---|
|
50% of your contribution |
$0 to $41,000 |
$0 to $30,750 |
$0 to $20,500 |
|
20% of your contribution |
$41,001 to $44,000 |
$30,751 to $33,000 |
$20,501 to $22,000 |
|
10% of your contribution |
$44,001 to $68,000 |
$33,001 to $51,000 |
$22,001 to $34,000 |
|
0% of your contribution |
Over $68,000 |
Over $51,000 |
Over $34,000 |
Data source: IRS
Get credit for your retirement account contributions
Contributing to your retirement account becomes more appealing when you can get rewarded for it. Review your finances and start saving as much as you can in a qualified retirement account. You can get a Saver's Credit worth up to $2,000 if you meet the requirements. Your savings can add up every year, allowing you to allocate less money to taxes and save more money toward the life you really want.
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