How to Use the Retirement Saver's Tax Credit

Most people know the government offers taxpayers certain benefits for contributing to retirement accounts. For example, eligible taxpayers can deduct contributions to traditional IRAs. And while not tax-deductible, contributions to Roth IRAs grow tax-free and post-retirement withdrawals are tax-free. But did you know that some taxpayers also qualify for a retirement saver’s tax credit in addition to these tax benefits?

What Is the Retirement Saver’s Tax Credit?

Also known as the retirement savings contributions credit, the retirement saver’s tax credit is available to certain taxpayers. Eligibility depends on income. To qualify, taxpayers must make contributions to the following qualifying retirement plans of which they are the owner or beneficiary:

Traditional IRAs
Roth IRAs
401(k)s
403(b)s
Governmental 457(b)s
SARSEPs
SIMPLEs
501(c)(18)(D)s
ABLE accounts

How Much Is the Retirement Saver’s Tax Credit?

The maximum retirement savings contributions credit is $2,000 or $4,000 if filing jointly with a spouse.

Note About the Credit Amount

This credit is a nonrefundable, meaning that if your credit amount exceeds the amount of your regular income tax liability, you are not refunded the amount of the credit in excess of your tax liability.

However, the actual credit amount a taxpayer will receive depends on their filing status, adjusted gross income, and the total contributions they make during the year to qualifying retirement plans.

A taxpayer can deduct 50%, 20%, or 10% of these contributions. The percentage depends on filing status and adjusted gross income for the year. Rollover contributions do not count for calculating the retirement saver’s tax credit.

Deduction Percentage Tiers

The table below shows the percentage tiers based on filing status and adjusted gross income for tax year 2022:

Maximum Credit as a Percentage of Contributions to Qualifying Retirement Plans	Adjusted Gross Income Range For Taxpayers With Married Filing Jointly Filing Status	Adjusted Gross Income Range For Taxpayers With Head of Household Filing Status	Adjusted Gross Income Range For Taxpayers With All Other Filing Statuses
50%	$41,000 or less	$30,750 or less	$20,500 or less
20%	$41,001 – $44,000	$30,751 – $33,000	$20,501 – $22,000
10%	$44,001 – $68,000	$33,001 – $51,000	$22,001 – $34,000
0%	$68,001 or more	$51,001 or more	$34,001 or more

Adjusted Gross Income Range For Taxpayers With Married Filing Jointly Filing Status $41,000 or less

Adjusted Gross Income Range For Taxpayers With Head of Household Filing Status $30,750 or less

Adjusted Gross Income Range For Taxpayers With All Other Filing Statuses $20,500 or less

Adjusted Gross Income Range For Taxpayers With Married Filing Jointly Filing Status $41,001 – $44,000

Adjusted Gross Income Range For Taxpayers With Head of Household Filing Status $30,751 – $33,000

Adjusted Gross Income Range For Taxpayers With All Other Filing Statuses $20,501 – $22,000

Adjusted Gross Income Range For Taxpayers With Married Filing Jointly Filing Status $44,001 – $68,000

Adjusted Gross Income Range For Taxpayers With Head of Household Filing Status $33,001 – $51,000

Adjusted Gross Income Range For Taxpayers With All Other Filing Statuses $22,001 – $34,000

Adjusted Gross Income Range For Taxpayers With Married Filing Jointly Filing Status $68,001 or more

Adjusted Gross Income Range For Taxpayers With Head of Household Filing Status $51,001 or more

Adjusted Gross Income Range For Taxpayers With All Other Filing Statuses $34,001 or more

For example, a single taxpayer with a 2022 adjusted gross income of $20,000 will be in the 10% tier. Contributing $1,000 to a qualifying retirement plan for the 2022 tax year will equal a $100 retirement saver’s tax credit.

Remember that the credit cap for married couples filing jointly is $4,000. The maximum is $2,000 for all other taxpayers.

So, if this taxpayer contributes $6,000 to their Roth IRA for tax year 2022, their retirement saver’s tax credit will be $2,000.

Another caveat is that any distributions taxpayers take from a qualifying retirement plan for the current year or two preceding years get subtracted from their contribution amount.

Note About Spousal Contributions

Although the maximum tax credit is $4,000 for married taxpayers who file jointly, the credit is still limited to $2,000 per spouse. So if a married couple filing jointly is in the 50% credit tier, and one spouse contributes $5,000 to their IRA during the year, but the other spouse contributes nothing to their IRA during the year, this couple’s credit would be $2,000 rather than $2,500.

Who Qualifies for the Retirement Saver’s Tax Credit?

For the 2022 tax year, non-dependent taxpayers who are at least 18 years old and not students qualify if they made contributions to qualifying retirement plans for the tax year if their adjusted gross incomes fall under the following limits:

Married filing jointly taxpayers with an adjusted gross income of $68,000 or less
Head of household taxpayers with an adjusted gross income of $51,000 or less
All other taxpayers with an adjusted gross income of $34,000 or less

To qualify for this credit, a “student” is someone who was a full-time student at a qualifying school during any part of at least five calendar months during the year. These include a college or university; a technical, trade, or mechanical school; or a government-sponsored on-farm training course.

How to Claim the Retirement Saver’s Tax Credit

Taxpayers can calculate and claim the retirement saver’s tax credit on Form 8880: Credit for Qualified Retirement Savings Contributions.

Here is how to claim the retirement saver’s tax credit on Form 8880:

Input the total amount of your and your spouse’s traditional IRA, Roth IRA, and ABLE account contributions for the year on line 1.
Input the total amount of your and your spouse’s contributions to other qualifying retirement plans on line 2.
Add line 1 and line 2 on line 3.
Input the amount of any distributions you took from a qualifying retirement plan for the current year or during the two preceding calendar years.
Subtract line 4 from line 3 on line 5.
Input the smaller of line 5 or $2,000 on line 6.
Add the amounts on line 6 on line 7.
Input your adjusted gross income on line 8.
Determine the appropriate decimal amount for your adjusted gross income and filing status and input it on line 9.
Multiply line 7 by line 9 on line 10.
, complete the credit limit worksheet in the Form 8880 Instructions. This simple worksheet determines if your credit amount is limited based on your regular income tax liability since the credit is nonrefundable. Input the result of that worksheet on line 11.
Input the smaller of line 10 or line 11 on line 12. This is your retirement saver’s tax credit amount for the year.

Once you’ve calculated your credit amount on Form 8880, input it on the “Retirement savings contributions credit” line on Schedule 3, Part I. This is attached to your Form 1040 along with Form 8880 itself.

Your retirement saver’s tax credit will be combined with your other nonrefundable credits on Schedule 3, Part I. This sum counts against your regular income tax liability on your Form 1040.

Seniority is published by Finance of America Reverse LLC. The views expressed in this publication are those of the author alone and do not necessarily reflect the views and opinions of Finance of America Companies. This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.