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Many eligible employees could benefit from the saver's credit—if they know about it
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Almost 2 in 3 U.S. workers don't know about the tax credit for retirement savers, and that could be costing them money.
Retirement Savings Contributions Credit, also called the saver's credit, is available to low- and moderate-income workers who are saving for retirement, but 64 percent of workers are unaware of it, according to the Transamerica Center for Retirement Studies in Los Angeles, which last fall surveyed over 6,000 employees.
Tax season is an ideal time to tell eligible workers how they can earn extra tax credits by saving through their employer's 401(k) or similar retirement plan.
"Millions of Americans who are already saving for retirement could be missing out on the saver's credit because they don't know it exists," said Catherine Collinson, president of the not-for-profit Transamerica Center. "Among those who are not yet saving for retirement, the saver's credit could be the incentive they need to get started."
"Saving for retirement is a challenge for many households in America. Special tax incentives help make the process of saving easier," said Scott Spann, a financial planner at Financial Finesse, a provider of workplace financial wellness programs in Charleston, S.C.
What Is the Saver's Credit?
Like other tax credits, the saver's credit can increase a taxpayer's refund or reduce the tax owed. Here's how it works:
The saver's credit "is different than a tax deduction due to the fact that a tax credit is a dollar-for-dollar reduction of your gross tax liability—the total amount of taxes you're responsible for paying before any credits are applied," Spann explained.
The saver's credit is in addition to the tax benefit of contributing pretax dollars to a qualified retirement plan such as an employer-sponsored 401(k) or an individual retirement account (IRA). "Many eligible retirement savers may be confusing these two incentives because the notion of a double tax benefit"—pretax contributions and an additional tax credit—"seems too good to be true," Collinson said.
Who Can Claim the Saver's Credit?
The credit is available to workers age 18 or older who have contributed to a company-sponsored retirement plan or IRA in the past year and meet the adjusted gross income (AGI) requirements (see below). The filer cannot be a full-time student and cannot be claimed as a dependent on another person's tax return.
[SHRM members-only toolkit:
Designing and Administering Defined Contribution Retirement Plans]
Income Caps for Tax Years 2017 and 2018
The amount of the available tax credit diminishes as income rises, up to the AGI limit. To help preserve the credit's value, income thresholds are adjusted annually to keep pace with inflation. Below are the income caps for tax year 2017 (when claiming the credit on tax returns filed this year) and 2018 (for returns filed next year).
*Includes qualifying widow(er)s.
Deadlines for Retirement Contributions
"You must make eligible contributions to your employer-sponsored retirement plan or IRA for the tax year for which you are claiming the income tax credit," Spann said.
While 401(k) contributions for a tax year can only be made up to Dec. 31, workers can contribute to an IRA up to the mid-April income tax filing deadline for the tax year.
"Many people who contributed to a 401(k) plan or IRA in 2017 are eligible to receive it but may be missing out because they don't know about it," Collinson said. "Those who are eligible but did not save last year can still contribute to an IRA until April 17, 2018, to claim the saver's credit for 2017."
Looking ahead, for tax year 2018 eligible workers can claim the credit if they make elective contributions to a 401(k) or similar workplace plan by Dec. 31, 2018, but they will have until April 15, 2019, to claim the credit if they set up an IRA or add money to an existing one.
While employees are focused on their taxes, "encourage them to set payroll-deferral retirement plan contributions for this year if they haven't done so already," Collinson advised. "That way, if they're eligible, they'll be able to claim the saver's credit on their 2018 taxes next April."
Filing for the Saver's Credit
Most workers who are eligible to claim the credit are also eligible to take advantage of the IRS Free File program for taxpayers with an AGI of $66,000 or less. Twelve software companies make their tax preparation software available at no cost at
Employers can advise eligible workers to take the following steps to claim the saver's credit:
The Transamerica Center for Retirement Studies has additional information in English and Spanish on its
Saver's Credit page, along with a downloadable
Related SHRM Articles:
How To Promote Retirement Savings for America Saves Week 2018,
SHRM Online Benefits, January 2018
How Improving Financial Health Boosts Productivity, SHRM Online Benefits, December 2017
SSA Revises Payroll Tax Cap for 2018; Tax Bill Alters Rates and Brackets,
SHRM Online Compensation, November 2017
Take a Team Approach to Financial Wellness, SHRM Online Benefits, October 2017
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