53% Unaware of Hidden Tax Credit That Saves Workers Average of Nearly $200 — Do You Qualify?

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The 2024 tax season is in full swing, with the IRS expecting nearly 129 million individual returns by the April 15 deadline. Many of those who do file returns this year are eligible for a tax credit that can help them save for retirement, but more than half aren’t even aware of it, according to a new survey from the Transamerica Center for Retirement Studies(TCRS).

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The survey of about 10,000 U.S adults, conducted last fall and released a couple of weeks ago, found that 53% of U.S. workers are unaware of the so-called Saver’s Credit. It’s a non-refundable tax credit that can 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, as well as a traditional or Roth IRA or an ABLE (Achieving a Better Life Experience) account.

According to the TCRS, “non-refundable” in this context means the credit can’t exceed a person’s federal income tax for the year. The maximum credit is $1,000 for single filers or individuals and $2,000 for married couples filing jointly.

The TCRS’ analysis of the most recently published IRS data found that the average amount of the Saver’s Credit in 2021 was $191.

“In addition to the other tax-advantages of saving for retirement in a 401(k), 403(b) or IRA, the Saver’s Credit is a benefit that may reduce a person’s federal tax bill, Catherine Collinson, CEO and president of TCRS and Transamerica Institute, said in a Feb. 27 press release.

As the TCRS noted, the credit is available to individuals ages 18 years or older who have contributed to a 401(k), 403(b) or similar employer-sponsored retirement plan, a traditional or Roth IRA, or an ABLE account in the past year and meet these Adjusted Gross Income (AGI) requirements:

• Single tax filers: Maximum AGI of $36,500 in 2023 and $38,250 in 2024.
• Heads of households: Maximum AGI of $54,750 in 2023 and $57,375 in 2024.
• Married filing jointly: Maximum AGI of $73,000 in 2023 and $76,500 in 2024.

In addition, the tax filer can’t be a full-time student or claimed as a dependent on another person’s tax return. For more details about eligibility, check out this  fact sheet from the TCRS. The TCRS also offers these tips for claiming the Saver’s Credit:

• Use the IRS’s online tool to help determine if you are eligible for the credit.
• If you use an online tax preparation tool to prepare your tax return, be sure to answer questions about the Saver’s Credit (also known as the “Retirement Savings Contributions Credit” and “Credit for Qualified Retirement Savings Contributions”).
• If you prepare your tax return manually, complete Form 8880, “Credit for Qualified Retirement Savings Contributions,” to determine your exact credit rate and amount. Transfer that amount to line 4 on Schedule 3, used with Forms 1040, 1040-SR, and 1040-NR.
• If you get a refund, consider directly depositing it into an IRA to boost your retirement savings.

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