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Understanding the Saver’s Tax Credit
Most people are aware that contributing to an employer-sponsored retirement plan or an IRA offers tax advantages. However, fewer than half of U.S. workers know about an additional tax credit that can reduce your tax bill dollar for dollar by up to $1,000—or up to $2,000 if you’re married and filing a joint return. This is where the saver’s credit comes into play, providing extra tax savings for certain taxpayers who contribute to an IRA or employer-sponsored retirement plan.
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. It offers 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) and decreases as your adjusted gross income (AGI) increases, ranging from 0% to 50%.
Unlike tax deductions, which only reduce your taxable income, tax credits reduce your tax bill dollar for dollar. The saver’s tax credit is nonrefundable, meaning it can lower your tax bill to zero, but you won’t receive money back if your credit exceeds your tax liability.
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. Eligible contributions can be made to:
- 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 where you are the designated beneficiary
Rollover contributions are not eligible for the saver’s credit, and your eligible contribution may be reduced if you received distributions from a retirement or ABLE account. 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.
2022 Saver’s Credit
| 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 |
2023 Saver’s Credit
| 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 |
Other Tax Credits to Consider
The federal government offers many refundable and nonrefundable tax credits that can help reduce your tax burden. Refundable credits give you money back if the credit is larger than your tax liability, while 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. However, 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.
For any mortgage-related needs, feel free to call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.
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