As tax season approaches, new guidance from the Internal Revenue Service (IRS) may benefit consumers’ wallets for this year and into the future. The organization is promoting the Saver’s Credit, or the Retirement Savings Contribution Credit, just in time for Americans to start preparing to file their taxes.
The program is designed to help low- and middle-income earners who contribute to 401(k) plans, Individual Retirement Agreements (IRA), or other retirement programs. The credit can also benefit individuals who contribute to Achieving a Better Life Experience (ABLE) accounts for those with disabilities.
The Saver’s Credit can help increase consumers’ tax refunds or help reduce what’s owed to the IRS. This year, the credit can be as much as $1,000 ($2,000 for married couples), though that amount isn’t guaranteed.
Applying for the Saver’s Credit
To be eligible for the Saver’s Credit, the IRS accounts for consumers’ income, marital (and tax filing) status, and the amount they’ve contributed to retirement plans or ABLE accounts. However, because of inflation, the agency has reported that the income limits are likely to be higher than they have been in the past – and continue to increase for next year, too.
Below are the current criteria to qualify for the Saver’s Credit:
Married couples filing separately or singles filing individually with incomes up to $34,000 in 2022 or $36,500 in 2023
Married couples filing jointly with incomes up to $68,000 in 2022 or $73,000 in 2023
Heads of household with incomes up to $51,000 in 2022 or $54,750 in 2023
There are also a few limitations for who is eligible to qualify for the Saver's Credit. These include:
A student – anyone enrolled in school full-time for at least five months of the calendar year – is ineligible for the Saver’s Credit.
Taxpayers under the age of 18 are not eligible for the Saver’s Credit.
Any individual who is a dependent on someone else’s tax return is ineligible for the Saver’s Credit.
The IRA reported that in the 2020 tax year, the average return from the Saver’s Credit was around $186 per qualifying return. In total, nearly $2 billion were claimed on nearly 9.5 million tax returns across the country.
It’s also important to note that the credits are likely to be less for consumers who have taken money from an ABLE account or retirement plan between 2019 and the official filing deadline for 2022 taxes (April 18, 2023).
Planning for tax season
It’s not too late for consumers with eligible retirement plans or ABLE accounts to take advantage of the Saver’s Credit for the 2022 tax season. Taxpayers have until the official filing deadline – April 18, 2023 – to contribute money into their Roth or traditional IRAs. Any new retirement plans set up between now and the deadline will also be eligible for the Saver’s Credit for 2022.
However, for traditional workplace retirement plans, all contributions must be made before the end of the year. This includes: 401(k) plans, 403(b) plans for public school employees and tax-exempt organizations, Governmental 457 plans for state and local employees, and Thrift Savings Plans for federal employees.
The IRS recommends that employees start planning with their employers for their 2023 contributions. In the meantime, a full list of retirement accounts that are eligible for the Saver’s Credit is available here.