Free money is great, so this post has been updated for the 2015 and 2016 tax years.
What is the Saver’s Credit?
The Saver’s Credit (aka the ‘retirement savings contribution credit‘) is a lesser known, highly advantageous tax credit that the IRS offers to incentivize low and moderate income taxpayers to make retirement contributions to an IRA, 401K, 403B, 457B, or any other IRS recognized retirement account.
What is nice about the Saver’s Credit is that it is an actual tax credit – not merely a tax deduction. If you’re not sure how the two differ, a tax deduction simply subtracts the value from your taxable income and you pay taxes on the remaining taxable income. A tax credit, on the other hand, actually gives you the entire dollar value back or subtracts the value from the taxes you owe – making it far more valuable monetarily than a deduction. In the case of the Saver’s Credit, it is non-refundable, meaning it can only be subtracted from the taxes you owe, possibly down to zero, but it can’t provide you with a tax refund.
Unfortunately, due to its limited popularity (and a serious lack of retirement contributions), only about 12% of eligible taxpayers actually claim this tax credit – which is a damn shame, since it is so advantageous!
Still, there’s people out there taking advantage of the Saver’s credit. According to the IRS, in tax year 2012, the most recent year for which complete figures are available, saver’s credits totaling $1.2 billion were claimed on more than 6.9 million individual income tax returns. Saver’s credits claimed on these returns averaged $215 for joint filers, $165 for heads of household and $127 for single filers.
As we’re nearing the end of a calendar year, we’re at an important crossroads of still being able to take advantage of the Saver’s Credit in 2015, while starting to plan ahead for 2016.
How much is the Saver’s Credit?
The short answer is that it depends on your income level and your contribution amount. It will take a small bit of effort to determine how much of a credit you will receive, but don’t let that deter you – if you are eligible, the result is free money!
The absolute most you could receive in a given year is $1,000 on a retirement contribution of $2,000 (double those numbers if married and filing jointly). In order to figure out what kind of credit you are eligible to receive, you will have to fill out IRS form 8880 (PDF), as the credit phases out at certain income levels. Or check out the contribution tables here.
Once you figure out the amount of the credit from form 8880, add it to Form 1040 (PDF), or onForm 1040A (PDF).
The 2015 and 2016 versions of these forms have not yet been released, but income eligibility and phaseout limits have gone up slightly. I’ve highlighted the maximum income levels to qualify below.
Maximum Income Level to qualify for the Saver’s Credit in 2015:
The AGI (adjusted gross income) limit for the saver’s credit is:
- $30,500 for single filers and married individuals filing separately
- $45,750 for heads of household
- $61,000 for married couples filing jointly
Maximum Income Level to qualify for the Saver’s Credit in 2016:
The AGI (adjusted gross income) limit for the saver’s credit is:
- $30,750 for single filers and married individuals filing separately
- $46,125 for heads of household
- $61,500 for married couples filing jointly
Saver’s Credit Eligibility
The following individuals are not eligible for the Saver’s credit:
- Those under age 18.
- Full-time students (enrolled as full-time for 5 months and over in a calendar year).
- Those claimed as dependent on another person’s return.
- Those at income levels above the aforementioned limits.
Are Contributions to a myRA Account Eligible for the Saver’s Credit?
Yes. Check out the myRA plan details for more info.
