Starting in 2022, the IRS will make a little-known tax break available to individuals with retirement accounts even more accessible. It could help you save up to $2,000 off your taxes.
The Saver’s Credit (formerly known as the Retirement Savings Contributions Credit) is available to low- and moderate-income individuals saving for retirement. According to the TurboTax website, those who qualify will receive a reduction or possibly a complete cancellation of their tax liabilities.
For people with high taxes, it can save you up to $1000 in federal taxes. In addition, it’s another incentive for individuals to save money for retirement, which is something not enough of us are doing these days.
The credit is seldom taken advantage of, and few people are even aware it exists. However, the good news for the year 2022 is that the IRS has increased the income range for individuals who are qualified to claim the Saver’s Credit, making it available to a broader group of taxpayers.
To qualify for the credit, your adjusted gross income must be $68,000 or less in 2022 if you’re married filing jointly, from $66,000 in 2021. If you’re head of household, your AGI must be $51,000 or less in 2022, up from $49,500 in 2021. In 2022, the AGI must be $34,000 or less.
If you meet the following conditions, you are qualified for the Saver’s Credit:
- Age 18 or older
- This is not claimed as dependent on someone else’s return.
- You’re not a student (the IRS considers you a student if you were enrolled as a full-time student at any school for five calendar months or took a full-time, on-farm training course given by a school or state, county, or local government agency during any part of five calendar months).
- You’ve paid your federal and state income taxes for the tax year you’re reporting on.
- Meet the financial requirements.
The tax break you receive depends on your income and filing status, which will determine whether you take the Saver’s Credit for 50%, 20%, or 10% of the first $2,000 you contribute during the year to a retirement account. Individuals may claim a maximum credit of $1,000, $400, or $200, respectively.
The Saver’s Credit is a non-refundable tax credit, which means it may reduce your tax obligation to zero but will not give you a tax refund. You can claim the credit for contributions to these types of retirement accounts:
- Simple IRA
- SEP IRA
- Traditional IRA
- Roth IRA
Note: You can’t deduct your employer’s contributions to these accounts.
Here’s a look at the rate and AGI eligibility by filing status, according to the IRS website:
|Credit||Married Filing Jointly (AGI)||Head of Household (AGI)||All Other Filers (AGI)|
|50% of your contribution||$0-$41,000||$0-$30,750||$0-$20,500|
|20% of your contribution||$41,001-$44,000||$30,751-$33,000||$20,501-$22,000|
|10% of your contribution||$44,001-$68,000||$33,001-$51,000||$22,001-$34,000|
|0% of your contribution||Over $68,000||Over $51,000||Over $34,000|