The Saver’s Tax Credit, also known as the Retirement Savings Contributions Credit, is designed to encourage low to moderate income taxpayers to save for retirement by offering a tax credit for eligible contributions. This credit can reduce the amount of taxes owed, and can result in a refund for some taxpayers. There are specific criteria to claim the credit, and the amount can vary depending on income and filing status.

Here’s how to claim the Saver’s Tax Credit, and who is eligible.

What is the saver’s tax credit and how does it work?

The Saver’s Tax Credit is available to taxpayers who contribute to an eligible retirement plan like a 401(k), SIMPLE IRA, ABLE account, SARSEP, 403(b) or 457(b), or a traditional or Roth IRA. The maximum contribution that is eligible for the credit is $2,000 for individuals and $4,000 for married couples filing jointly. The maximum credit amount is $1,000 for individuals, and $2,000 for married couples filing jointly.

To be eligible for the tax credit, the taxpayer must be 18 years or older and not be a full-time student. They must also not be claimed as a dependent on someone else’s tax return.

The credit is different from a tax deduction. While a tax deduction reduces the amount of income that is subject to income tax, a tax credit provides a dollar-for-dollar reduction in the amount owed.

Who is eligible for the Saver’s Tax Credit?

To be eligible for the Saver’s Tax Credit, your income must not exceed the income limits in the year you want to claim the credit. In 2022, the income cap for the credit is $68,000 when married filing jointly, $51,000 for heads of household, and $34,000 for single and other filers.

In 2023, the income cap is $73,000 when married filing jointly, $54,750 for heads of household, and $36,500 for single and other filers.

Your income also determines whether you can claim a 50% credit, a 20% credit, or a 10% credit.

The income limits for tax years 2022 and 2023 are below:

Tax year 2022

You claim Married filing jointly Head of household Other filers
50% of your contribution AGI not more than $41,000 AGI not more than $30,750 AGI not more than $20,500
20% of your contribution $41,001- $44,000. $30,751 – $33,000 $20,501 – $22,000
10% of your contribution $44,001 – $68,000. $33,001 – $51,000 $22,001 – $34,000
0% of your contribution More than $68,000 More than $51,000 More than $34,000

Tax year 2023

You claim Married filing jointly Head of household Other filers
50% of your contribution AGI not more than $43,500 AGI not more than $32,625 AGI not more than $21,750
20% of your contribution $43,501–$47,500 $32,626–$35,625 $21,751–$23,750
10% of your contribution $47,501–$73,000 $35,626–$54,750 $23,751–$36,500
0% of your contribution More than $73,000 More than $54,750 More than $36,500

Saver’s Tax Credit example

Rachel earns $45,000 in tax year 2022 and is married filing jointly. Her husband was unemployed and made no income. Each month, Rachel contributes $100 to her 403(b) plan and $50 to her traditional IRA, for a total annual contribution of $1,800 between the two accounts. After deducting her retirement contributions, her income falls within the 20% limit for 2022. She can claim a Saver’s Credit of 20%, resulting in a $360 credit.

How to claim the Saver’s Tax Credit

Taxpayers who meet the income limits, and other eligibility criteria, can use IRS Form 8880 to claim the credit. The form asks for your contributions and your spouse’s contributions, if applicable. You will add your contributions to various types of retirement accounts, like 401(k), traditional or Roth IRAs, and ABLE accounts. The form then provides instructions on calculating your total credit, which you will add to line 4 of Form 1040.

Bottom line

The Saver’s Tax Credit allows lower income earners to claim a credit on their tax return. To be eligible, you must also be at least 18 years of age, not be a full-time student or be claimed as a dependent on someone else’s tax return. Different income limits apply to couples married filing jointly, heads of household, and other filers. Depending on your filing status and income, you could be eligible for a tax credit of 50%, 20%, or 10%.