Millions of Americans are not claiming a tax credit which could save them thousands, experts are warning.
The lesser-known retirement savings contributions credit, otherwise known as the saver’s credit, helps offset funds added to a 401(K) or an individual retirement account (IRA).
The tax break is worth up to $1,000 per filer, but most eligible taxpayers do not claim it.
‘The saver’s credit is a well-kept secret,’ said Catherine Collinson, CEO and president of Transamerica Center for Retirement Studies.
A report from the nonprofit released earlier this month found that only 51 percent of eligible workers were aware the credit existed.
The organization polled more than 10,000 American adults in September and October last year.
‘Many low- to moderate-income retirement savers may be missing out on the Saver’s Credit simply because they don’t know about it,’ Collinson added.
The maximum credit for single filers is $1,000, and $2,000 for married couples filing jointly.
The saver’s credit, helps offset funds added to a 401(K) or an individual retirement account (IRA)
The credit provides a dollar-for-dollar reduction of taxes owed, which could reduce your bill or increase your refund.
The credit is ‘non-refundable,’ which means it cannot exceed an individual’s federal income tax for the year.
Tax credits directly reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability.
Tax deductions, on the other hand, reduce how much of your income is subject to taxes.
The way the credit is calculated is ‘fairly complex,’ Emerson Sprick, associate director for the Bipartisan Policy Center’s Economic Policy Program, told CNBC.
There are income phase-outs to claim 50 percent, 20 percent or 10 percent of your retirement contribution, which depend on your income and filing status.
For the 50 percent credit in 2024, your adjusted gross income cannot be more than $23,000 for single filers, or $46,000 for married couples, according to the outlet.
The percentages drop to 20 percent and 10 percent, respectively, as earnings increase.
Taxpayers have until April 15 to file their return this tax season
The saver’s credit provides a dollar-for-dollar reduction of taxes owed, which could reduce your bill or increase your refund
For the 2024 tax year, individual filers can not have made more than $38,250 to be eligible, while joint filers can not have made more than $76,500.
It is also not too late if you did not make a qualifying contribution last year, CNBC reported.
You can still make an IRA deposit before April 15 to claim the credit on your 2024 return.
For the 2025 tax year, the maximum adjusted gross income for individuals to claim the credit is $39,500, and $79,000 for married couples.
While ‘awareness of the credit is very low across the board,’ said Sprick, it is even lower among taxpayers who need it most.
Only 44 percent of taxpayers with a household income of $50,000 or less know about it, according to the analysis from TCRS.
The most recent IRS data from 2022 reveals that around 5.8 percent of returns claimed the credit.
TCRS found the average saver’s credit that eligible Americans received in 2022 was $194.
To see if you are eligible, you can use the IRS tool.
The lack of uptake for the credit is part of the motivation for the so-called ‘saver’s match’, enacted via the Secure 2.0 tax law, which will replace the saver’s credit in 2027 and deposit money directly into taxpayers accounts, said Sprick.
‘Everyone hopes that it’s going to be easier,’ he told CNBC. But ‘there are a lot of logistics that remain to be worked out.’
