AN obscure tax incentive can help Americans who earn low to moderate incomes with their savings.
Most taxpayers who are eligible for the tax break aren’t claiming it.
The Internal Revenue Service (IRS) offers a tax credit so that taxpayers can save for retirement and possibly earn a tax credit in 2025 and beyond.
The Retirement Savings Contributions Credit, also called the Saver’s Credit, helps taxpayers offset part of their first $2,000 ($4,000 if filing jointly with a spouse) voluntarily contributed to IRAs, 401(k)s, and other employer-sponsored retirement plans.
The tax break can save up to $1,000 per filer.
It’s not just limited to last year’s contributions either – filers can still make IRA deposits by April 15 in order to claim the credit.
The IRS even offers a tool to see if you are eligible to claim it.
“The Saver’s Credit is a well-kept secret,” Transamerica Center for Retirement Studies (TCRS) CEO and president Catherine Collinson said in a report.
“Please spread the word about it by telling family, friends, and colleagues.”
According to a TCRS survey, which polled over 10,000 American adults in September and October, only half of workers know about the saver’s credit.
An even lower 44% of taxpayers with a household income of less than $50,000 are aware that it could help them save.
“It could help eligible savers improve their long-term savings and inspire non-savers to start saving for retirement,” said Collinson.
Collinson emphasized that tax credits such as the saver’s credit are important for building up prolonged savings.
“Saving habitually over time is essential for achieving long-term financial security,” said Collinson.
“Every dollar counts.”
For those who would actually benefit from the tax credit, it’s a little-known solution.
“Awareness of the credit is very low across the board,” said Bipartisan Policy Center’s Associate Director of Economic Policy, Emerson Sprick.
Around 5.8% of filers saved money with the saver’s credit in 2022, according to the IRS.
An analysis by the Transamerica Center for Retirement Studies showed that the average credit value that year was $194.
2025 Tax Season
Tax season started on January 27 and folks must have theirs completed filed on April 15.
Those who fail to file by that time may face penalties.
However, taxpayers who need more time may file for an extension – this gives them until October 15.
The way to do this is by filling out Form 4868, the Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.
This can be done by mail, online with an IRS e-filing partner, or through a tax professional.
While there’s no set schedule, the IRS revealed that taxpayers may receive refunds within 21 days of filing.
Just be sure to avoid making mistakes on any forms as that could tack on extra time.
Those filing through mail will likely get their returns within a month or could even face delays as the IRS processes millions.
As of January 31, the average refund amount totaled $1,928, per the IRS.
This is compared to the $1,395 for the same period in 2024.
The average direct deposit refund for 2025 was even higher, the IRS said, at $2,069.
To check the status of your refund, The IRS has an online tool called Where’s My Refund?
This works within 24 hours of e-filing and generally within four weeks of filing a paper return.
HOW TO QUALIFY
The saver’s credit reduces the amount of taxes owed on a dollar-for-dollar basis, which can potentially lower your tax bill or increase your refund.
The tax break is nonrefundable, however, meaning it provides no benefit if you have $0 tax liability.
Depending on filing status or adjusted gross income, there are phase-outs to claim either 50%, 20%, or 10% of your contribution.
Gross adjusted income cannot exceed $23,000 for single filers or $46,000 for married couples to receive the 50% credit.
For higher incomes, the percentages are lower at 10-20%.
“The way it’s calculated is fairly complex,” said Sprick.
According to Sprick, the combination of the credit’s design and lack of awareness of it contribute to the low number of people taking advantage of it.
“Everyone hopes that it’s going to be easier,” said Sprick.
“There are a lot of logistics that remain to be worked out.”
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