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Tax-Time Reminder: Most Don't Know About the Saver's Credit

Inform eligible employees about a tax credit for making 401(k) contributions

Three workers in a factory looking at a tablet.

[updated: 3/14/22]

Fewer than half of U.S. workers are aware of a tax credit that may help those with modest incomes save for retirement through their workplace plan.

The Retirement Savings Contributions Credit, often referred to as the saver's credit, is available to millions of eligible taxpayers who are saving for retirement. But when the nonprofit Transamerica Center for Retirement Studies (TCRS) polled more than 10,000 adults late last year, they found only 48 percent were aware of the tax credit. Among those earning less than $50,000 annually, just 41 percent knew about the credit.

"Saving for retirement can be difficult in the best of times, but even harder for many during the pandemic and challenging economy," said Catherine Collinson, CEO and president of TCRS. "The saver's credit may help make it easier for people to save because it lowers their federal income tax."

Spreading the word about the saver's credit "may meaningfully impact an individual's long-term savings, and even inspire non-savers to start saving for retirement," Collinson said. TCRS' fact sheet/poster can help to get the word out.

What Is the Saver's Credit?

The saver's credit is a nonrefundable tax credit that may be applied up to the first $2,000 of voluntary contributions an eligible taxpayer makes to a 401(k), 403(b) or similar employer-sponsored retirement plan; to a traditional or Roth individual retirement account (IRA); or to an ABLE account for people with disabilities. "Nonrefundable" means the credit cannot exceed a person's federal income tax for the year. The maximum credit is $1,000 for single tax filers and $2,000 for married couples filing jointly.

Who Is Eligible?

The credit is available to individuals age 18 or older who have contributed to a retirement plan in the past year and who meet the adjusted gross income (AGI) requirements. Additionally, the tax filer cannot be a full-time student and cannot be claimed as a dependent on another person's tax return.

For eligible workers, the amount of the available tax credit diminishes as adjusted gross income (AGI) rises. To help preserve the credit's value, income thresholds are adjusted annually to keep pace with inflation. Below are the AGI caps for tax year 2021 (for tax returns filed this year) and 2022 (for returns filed next year).

2021 Saver's Credit
Tax Credit Rate Single Filers and Married, Filing Separately* Married, Filing Jointly Heads of Household
50% of contributionAGI not more than $19,750AGI not more than $39,500AGI not more than $29,625
20% of contributionAGI of $19,751 - $21,500AGI of $39,501 - $43,000AGI of $29,626 - $32,350
10% of contributionAGI of $21,501 - $33,000AGI of $43,001 - $66,000AGI of $32,251 - $49,500
No creditAGI more than $33,000AGI more than $66,000AGI more than $49,500
2022 Saver's Credit
Tax Credit Rate Single Filers and Married, Filing Separately* Married, Filing Jointly Heads of Household
50% of contributionAGI not more than $20,500
AGI not more than $41,000AGI not more than $30,750
20% of contribution
AGI of $20,501 - $22,000
AGI of $41,001 - $44,000AGI of $30,751 - $33,000
10% of contributionAGI of $22,001 - $34,000AGI of $44,001 - $68,000AGI of $33,001 - $51,000
No creditAGI more than $34,000
AGI more than $68,000AGI more than $51,000

*Includes qualifying widows and widowers.
Source: IRS.

A Credit, Not a Refund

Mike Webb, senior financial advisor in the New York City office of CAPTRUST, tweeted: "The problem with [the savers' credit], though is the nonrefundable part. The vast, vast majority of low-income folks don't owe taxes, so the saver's credit is useless to them since it won't increase their refund; it can only reduce the amount owed."

Still Time to Make IRA Contributions

"To qualify for the saver's credit, contributions must be made to [an eligible workplace retirement plan] by the end of the calendar year," or last Dec. 31 for claiming the credit when filing 2021 taxes this year, wrote Nevin Adams, chief content officer at the American Retirement Association in Arlington, Va.

However, he noted, eligible retirement savers who didn't contribute to a workplace plan last year "have until the tax filing deadline of April 18, 2022, to make a contribution to an IRA and have it count as a 2021 contribution," leaving them eligible for the credit.

They also can start planning to claim the saver's credit next year by contributing now to their workplace plan.

Filing for the Saver's Credit

Employers can advise eligible workers to take the following steps to claim the saver's credit, according to TCRS:

  • If using tax-preparation software, including those programs offered through the IRS Free File program, use Form 1040 or Form 1040-NR for nonresident aliens. Answer questions about the saver's credit, which may be referred to as the Retirement Savings Contributions Credit or the Credit for Qualified Retirement Savings Contributions.
  • If preparing tax returns manually, complete Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your exact credit rate and amount. Then transfer the amount to the designated line on Form 1040 (Schedule 3) or Form 1040-NR.
  • If using a professional tax preparer, ask about the saver's credit.

Financial planners advise having tax refunds directly deposited into an IRA to further boost retirement savings.

IRS Free File Program Is Available

Another potentially overlooked opportunity for low- and moderate-income workers is the IRS Free File program, which offers federal income tax preparation software at no charge to tax filers with an AGI of $73,000 or less.

For the current tax season, the Free File options are:

  • ezTaxReturn.
  • Free 1040 Tax Return.
  • OLT Online Taxes.
  • TaxSlayer.
  • FreeTax USA.
  • 1040 Now.

To use the Free File service, eligible taxpayers will need a copy of their previous year's tax return to access their AGI, and all relevant income statements, such as Form W-2s showing their annual wages from employers and Form 1099-INT showing interest paid throughout the year. 

With these in hand, filers can:

  • Go to and browse each of the offers or use a "look up" tool to help find the right product. Each Free File partner sets its own eligibility standards generally based on income, age and state residency. But if the taxpayer's adjusted gross income was $73,000 or less, they will find at least one free product to use.
  • Select a provider and follow the links to their webpage to begin a tax return.
  • Complete and e-File a tax return.

The fastest way to get a refund is by filing electronically and selecting direct deposit. For taxes owed, filers can use direct pay or electronic options.

Many Free File online products also offer free state tax preparation, although some charge a state fee. Taxpayers should read each provider's information carefully.

For 2021 income taxes, the filing deadline this year is Monday, April 18, as April 15 is recognized as a holiday, Emancipation Day, in Washington, D.C.


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