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If you’re saving for retirement, you may qualify for a tax break of up to $2,000. This is thanks to the Credit for Qualified Retirement Savings Contributions, better known as the Saver’s Credit, found on IRS form 8880. This credit should not be overlooked, because it offers major savings on taxes.

The Saver’s Credit is designed to reward working- and middle-class taxpayers for investing in retirement accounts. The credit provides savings of up to $2,000 for married couples and up to $1,000 for single taxpayers. The best part is that the credit is remarkably easy to claim. Form 8880 is just two pages and can be completed in a few minutes.

Who Qualifies for the Saver’s Credit?

The Saver’s Credit is available to taxpayers who contributed to any of a wide variety of retirement accounts, including traditional IRAs, Roth IRAs, ABLE accounts, and 401(k)s. You may be eligible for the credit regardless of what other tax advantages your retirement account already provides.

Unfortunately, there are quite a few limitations on eligibility for the Saver’s Credit. The first of these limitations is an income cap. The credit is designed to incentivize retirement investments among taxpayers who would otherwise be less likely to save. Therefore, the IRS limits eligibility to married couples (filing jointly) who make $66,000 or less, single heads of households who make $49,500 or less, and all others who make $33,000 or less.

In addition, the Saver’s Credit is only available to adults, aged 18 or older, who are not claimed as dependents on anyone else’s taxes. Another disqualifying factor is enrollment as a student. If you were a full-time student during five or more months of the year, you are not eligible for the credit. Part-time students, however, may receive the credit.

How Much Can You Save?

The Saver’s Credit offers tax savings of up to $1,000 per person, and it is a true credit, not a deduction. In other words, the credit lowers the overall amount of taxes you owe, not just your taxable income. The exact size of your credit depends on four factors: Your adjusted gross income, your total tax liability, your filing status, and your retirement account contributions during the tax year.

Form 8880 provides a credit of 50%, 20%, or 10% of your retirement account contributions depending on your total adjusted gross income. Married couples filing jointly can receive the full 50% of their contributions only if their adjusted gross income is under $41,000. For single heads of households, that cutoff is $30,750, and for non-heads of households, just $20,500. The cutoff to receive a 20% credit is $44,000 for married couples filing jointly, $33,000 for single heads of households, and $22,000 for non-heads of households. All other eligible filers receive a 10% credit.

The other major limiting factor is that the credit is only based on the first $2,000 that you contribute to a qualifying retirement account. If you contribute more than $2,000, it won’t disqualify you from the credit, but it won’t increase your savings either. For married couples filing jointly, each spouse can claim a credit based on the first $2,000 that they have contributed.

Lastly, it’s important to note that the Saver’s Credit is non-refundable. This means that the credit can never exceed your total tax liability. (For example, if you would otherwise be eligible for a $1,000 Saver’s Credit but only owe $600 in taxes, your Saver’s Credit is reduced to $600.)

Conclusion

Despite the many limitations that the IRS places on the Saver’s Credit, it is still a great opportunity for households to save hundreds or thousands of dollars. If you’re already saving for retirement, this credit might significantly reduce your tax liability. If you don’t have a retirement account yet, the credit offers a strong incentive to start one. Check IRS form 8880 to begin calculating exactly how much you might save.