By Gayle SatoWhat Is the Saver’s Credit and How Does It Work?
Quick Answer
Moderate-income taxpayers can receive a tax credit above and beyond the tax benefits of an IRA, employer-sponsored 401(k) or ABLE account by claiming the saver’s credit. Claim up to 50% of a $2,000 contribution ($4,000 if you’re married filing jointly) as long as you meet the eligibility requirements.
Most people know that contributing to an employer-sponsored retirement plan or an IRA comes with tax advantages. But fewer than half of U.S. workers (49%) are aware that an additional tax credit can reduce your tax bill dollar for dollar by up to $1,000—up to $2,000 if you're married filing a joint return.
The saver's credit provides certain taxpayers with additional tax savings when they contribute to an IRA or employer-sponsored retirement plan. Here's what to know about the saver's credit.
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What Is the Saver's Tax Credit?
The Credit for Qualified Retirement Savings―commonly known as the saver's tax credit―encourages low- and moderate-income taxpayers to save for retirement by offering a credit of up to $1,000 ($2,000 for married couples filing jointly) for qualified contributions to retirement accounts. The credit is calculated as a percentage of up to $2,000 in contributions ($4,000 for joint filers). The credit decreases as your adjusted gross income (AGI) goes up, and ranges from 0% to 50%.
Tax credits reduce your tax bill dollar for dollar, as opposed to tax deductions, which only reduce your taxable income. The saver's tax credit is nonrefundable: It can lower your tax bill all the way down to zero, but you won't receive money back if your credit is worth more than what you owe in taxes.
Who Qualifies for the Saver's Credit?
To be eligible for the saver's credit, you must be 18 or older, not claimed as a dependent on another person's tax return and not a full-time student. Contributions may be eligible if made to one of the following:
- A traditional or Roth IRA
- An employer-sponsored retirement plan, such as 401(k), 403(b), governmental 457(b), SARSEP or SIMPLE
- An ABLE account that lists you as the designated beneficiary
Rollover contributions aren't eligible for the saver's credit, and your eligible contribution may be reduced if you received distributions from a retirement or ABLE account.
Not sure whether you meet the requirements? The IRS offers an interactive online tool to help you determine whether you qualify for the saver's credit.
How Does the Saver's Credit Work?
To see whether you qualify for the saver's credit—and what your credit would be—use the charts below to find the percentage you may claim as a credit, based on your filing status and adjusted gross income.
| Credit Amount | Married Filing Jointly | Head of Household | Single, Married Filing Separately & Qualifying Widow(er) |
|---|---|---|---|
| 50% | Adjusted gross income up to $41,000 | Adjusted gross income up to $30,750 | Adjusted gross income up to $20,500 |
| 20% | $41,001 - $44,000 | $30,751 - $33,000 | $20,501 - $22,000 |
| 10% | $44,001 - $68,000 | $33,001 - $51,000 | $22,001 - $34,000 |
| 0% | $68,001 and up | $51,001 and up | $34,001 and up |
Source: IRS
| Credit Amount | Married Filing Jointly | Head of Household | Single, Married Filing Separately & Qualifying Widow(er) |
|---|---|---|---|
| 50% | Adjusted gross income up to $43,500 | Adjusted gross income up to $32,625 | Adjusted gross income up to $21,750 |
| 20% | $43,501 - $47,500 | $32,626 - $35,625 | $21,751 - $23,750 |
| 10% | $47,501 - $73,000 | $35,626 - $54,750 | $23,751 - $36,500 |
| 0% | $73,001 and up | $54,751 and up | $36,501 and up |
Source: IRS
Other Tax Credits to Consider
The federal government has many refundable and nonrefundable tax credits that may help you reduce your tax burden. Refundable credits give you money back if the credit is larger than your tax liability, where nonrefundable credits do not.
Here are a few common credits to consider:
Earned Income Tax Credit
Low- and moderate-income taxpayers may benefit from the earned income tax credit, a refundable tax credit worth $560 to $6,935 in 2022 or $600 to $7,420 in 2023. To qualify, you must have worked and earned less than $59,187, with investment income of less than $10,300 in the 2022 tax year.
Child and Dependent Care Credit
If you paid for child care or care for another dependent so you could work or look for work, you may be eligible for the child and dependent care credit. This nonrefundable credit is equal to 20% to 35% of your work-related care expenses up to $3,000 for one dependent or $6,000 for two or more dependents.
Lifetime Learning Credit
Students or parents of students may receive a nonrefundable lifetime learning tax credit of up to $2,000 for qualifying post-secondary educational expenses. Income limits apply.
The Bottom Line
Not every taxpayer qualifies for the saver's credit. But if you do, you could save hundreds or even thousands of dollars on your tax bill—and enjoy an added incentive to plan for your future, courtesy of the U.S. government.
In 2027, the saver's credit is expected to reboot as the saver's match, a provision that will add up to $1,000 ($2,000 for married couples filing jointly) to a qualifying taxpayer's retirement account as an incentive to save. The effect will be similar to the current saver's tax credit, except that the money must be directed to retirement accounts.
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About the author
Gayle Sato
Gayle Sato writes about financial services and personal financial wellness, with a special focus on how digital transformation is changing our relationship with money. As a business and health writer for more than two decades, she has covered the shift from traditional money management to a world of instant, invisible payments and on-the-fly mobile security apps.
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