Saver’s Tax Credit Helps Lower Income Employees Save for Retirement

    Saving for retirement is a daunting task for anyone, but its particularly challenging for lower income employees. One provision of the Tax Code, however, can make it a little easier. Its called the “Savers Tax Credit.” For 2020, the Savers Tax Credit (STC) is available to employees whose modified adjusted gross income is below $32,500 for Single tax filers, $65,000 for couples and $48,750 for Heads of Household.

    To be eligible, you must 18 or older, not a full-time student, and not be claimed as a dependent on some else’s tax return. 

Saver’s Tax Credit

Credit Amount Single Head of Household Joint Filers
50% of Contribution AGI of $19,500 or less AGI of $29,250 or less AGI of $39,500 or less
20% of Contribution $19,501 – $21,250 $29,251 – $31,875 $39,001 – $42,500
10% of Contribution $21,251 – $32,500 $31,876 – $48,750 $42,501 – $65,000
0% of Contribution more than $32,500 more than $48,750 more than $65,000

    If eligible, the STC allows the first $2,000 of the amount you contribute to an IRA, 403b Plan, 401k Plan, or similar workplace retirement account, to count towards the savers tax credit. As a reminder, a tax credit is a dollar for dollar reduction of your tax bill. The credit can be used to increase your refund or reduce the tax you owe. The potential amount of the credit varies and is based on your income and filing status. Never the less, the credit itself can be as large as $1000 for employees (50% of the $2000 amount you contribute to employer’s Retirement Plan, or to an IRA). For eligible employees, the savers tax credits benefit is in addition to the tax deferral you receive from making a contribution to your employer’s Retirement Plan or IRA.

    Unfortunately, awareness of the provision has remained low. Millions of lower income Americans don’t know of this opportunity to help them save for retirement. In fact, a recent Transamerica Center for Retirement Studies online survey of 4,080 employees age 18 and older, found that only 21% of people earning less than $50,000 said they knew of the STC. That’s up from 12% in 2010. Hopefully, this article will reach employees who may be eligible.

    Employees interested in obtaining the tax credit must have made a contribution to their employer’s retirement plan by the end of the calendar year. However, you have until April 15th (federal tax filing date) to make contributions to an IRA to get the credit for the preceding year. Also, you must ask for the Credit with IRS Form 8880. You don’t automatically get this benefit.

    For nearly all Americans, making contributions to employer retirement plans or IRAs is the key to a secure retirement. If you’re eligible, don’t overlook the opportunity provided by STC to help you fund your retirement.


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