What is the Saver’s Credit?

January 17, 2017 : Allie Freeland

Editor’s Note: This post discusses the Saver’s Credit, a special tax break to low- and moderate-income American taxpayers saving for retirement. Remember: You can’t file Form 8880 using a 1040EZ, so it’s important to consult an expert to make sure you are eligible for the credit.

The Retirement Savings Contributions Credit or “Saver’s Credit” allows you to save money for your retirement, while also offering a tax credit, thus reducing – or in some cases even eliminating – your overall tax amount owed. It is a non-refundable credit, meaning it can reduce the tax you owe to zero, but it can’t provide you with a tax refund. You can’t file Form 8880 using a 1040EZ, so it’s important to consult an expert to make sure you are eligible for the credit. To help determine eligibility, use the help of a tax professional at H&R Block.

Many people don’t take advantage of the credit simply because they don’t know anything about it. In fact, a recent survey conducted by Transamerica Center for Retirement Studies revealed just one quarter of Americans with an annual household income of less than $50,000 are aware of the credit.

Save for Retirement Through the Saver’s Credit

This credit offers an incentive to build a nest egg you can use upon retirement. With the Saver’s Credit, you can offset part of the first $2,000 you contribute to your retirement plan ($4,000 if you file jointly with your spouse) through:

  • 401(k) plans
  • Traditional or Roth IRAs
  • SIMPLE plans
  • SEP plans
  • 403(b) annuities
  • 457 annuities
  • 501(c)(18) plans
  • Governmental 457(b) plans

Rollover retirement contributions are not eligible.

What Credits Can You Get?

The maximum credit is $1,000 for single filers or $2,000 for married couples. The credit you obtain may be less because of your deductions and other credits claimed. However, the amount of the eligible credit begins to be reduced as your income increases. The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions depending on your adjusted gross income, or AGI.

savers credit 2016

Who is Eligible?

Eligibility hinges on a few factors: your age, dependency, education status, and income.

  • Age: You must be at least 18 years old by the end of the tax year.
  • Dependent Status: You can’t claim the credit if you’re claimed as a dependent on another person’s tax return.
  • Education Status: You can’t claim the credit if you are a full-time student.
  • Income: Your modified adjusted gross income (AGI), based on your filing status, isn’t more than:

Married filing jointly – $61,500

Married filing separately – $30,750

Single – $30,750

Head of household – $46,125

Qualifying widow(er) – $30,750

How to Claim the Saver’s Credit

As tax season approaches, you’ll need to know where to go to take advantage of the Saver’s Credit. In order to claim the Saver’s Credit, you’ll need to complete IRS Form 8880, and attach it to your 1040, 1040A or 1040NR when you file your tax return. You can’t file Form 8880 using a 1040EZ, so it’s important to consult an expert to make sure you are eligible for the credit.

To help determine eligibility, use the help of a tax professional at H&R Block.

 

Related Topics

Allie Freeland

Allie Freeland

Contributing Editor, H&R Block

Allie is the Contributing Editor of the H&R Block blog, Block Talk. She has been a practicing grammar geek since 2007.

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