Saver's Credit: A Retirement Tax Break for the Middle Class

If your income isn't too high, the Saver's Credit can help lower your tax bill if you contribute to a retirement account now.

picture of woman putting money in a 401(k) savings jar
(Image credit: Getty Images)

Saving for retirement is even more rewarding if you qualify for the Retirement Savings Contribution Credit – a.k.a., the Saver's Credit. This tax break is designed to encourage low- and middle-income people – including younger workers who are just getting started – to begin building their retirement nest egg. In fact, for those who qualify for the Saver's Credit, the lower your income, the higher the percentage of retirement plan contributions you get back on your tax return.

Also note that people with disabilities who have an ABLE account can take advantage of the Saver's Credit, too. Contributions to these accounts qualify for the credit, so long as they're from the designated beneficiary.

Heads Up: The EARN Act – a bill being considered by Congress – would make significant changes to the Saver's Credit. For details on this proposed legislation, see Big Changes to the Saver's Credit Could Be on the Way.

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Who Qualifies for the Saver's Credit

For the 2022 tax year, single filers and married people filing a separate return with modified adjusted gross income of $34,000 or less may be eligible. Married couples filing jointly must have a modified AGI of $68,000 or less, while head-of-household filers must have a modified AGI of $51,000 or less.

However, some people can't claim the Saver's Credit, regardless of income. Taxpayers under 18 years of age, full-time students, and anyone claimed as a dependent on someone else's tax return aren't eligible. You're considered a "full-time student" for purposes of the Saver's Credit if, during any part of five months of the year, you:

  • Were enrolled as a full-time student at a school (including a technical, trade, or mechanical school); or
  • Took a full-time on-farm training course offered by a school or a state, county, or local government agency.

You're not eligible for the credit if you're taking an on-the-job training course, attending a correspondence school, or participating in online classes that are only available through the Internet.

How Much is the Saver's Credit

Fall within the income limits and you can claim a tax credit worth up to $1,000 for singles or $2,000 for joint filers. The credit is based on 10%, 20% or 50% of the first $2,000 ($4,000 for joint filers) you contribute to retirement accounts, including 401(k)s, traditional IRAs and Roth IRAs (although rollover contributions don't count).

The following table shows which percentage you would use for the 2022 tax year, depending on your income and filing status.

Swipe to scroll horizontally
Married Filing Jointly Filing StatusHead-of-Household Filing StatusSingle or Married Filing Separately Filing StatusPercentage of Contribution Allowed
AGI of $41,000 or lessAGI of $30,750 or lessAGI of $20,500 or less50%
AGI of $41,001 to $44,000AGI of $30,751 to $33,000AGI of $20,501 to $22,00020%
AGI of $44,001 to $68,000AGI of $33,001 to $51,000AGI of $22,001 to $34,00010%
AGI over $68,000AGI over $51,000AGI over $34,0000%

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There's one less-than-desirable aspect of the Saver's Credit – it's a "nonrefundable" credit. That generally means the credit is only worth as much as the tax you owe. In other words, the credit can't reduce your tax liability below $0 or generate a tax refund all by itself. For example, if you owe $500 of tax before applying the credit, but you qualify for a $750 Saver's Credit, you won't owe any tax, but you won't be getting a refund for $250, either. But, hey, at least you're still getting $500 knocked off your tax bill – right!

How to Claim the Saver's Credit

To claim the credit, you first need to complete Form 8880 (opens in new tab) to calculate the amount of your credit. You will then report the credit amount on Part I of Schedule 3 (opens in new tab) (Form 1040), which then gets carried over to your Form 1040 (opens in new tab). Make sure you attach Form 8880 and Schedule 3 to the rest of your return when you file it.

David Muhlbaum
Senior Online Editor, Kiplinger.com

In his current role as Senior Online Editor, David edits and writes a wide range of content for Kiplinger.com. With more than 20 years of experience with Kiplinger, he has worked on and written for a range of its publications, including The Kiplinger Letter and Kiplinger’s Personal Finance magazine. He is a co-host of Your Money's Worth, Kiplinger's podcast and has helped develop the Economic Forecasts feature.