Saver's Credit for 401(k) Plan Contributions

Employee Benefits
Article
6 min. Read
Last Updated: 12/08/2022

If you contribute to a company-sponsored <a href="https://www.paychex.com/retirement-services">retirement plan</a>, you may be able to claim a "Saver's Credit”. Read more about how it can help you get the most out of your 401(k).

Table of Contents

Also known as the retirement savings contribution credit, the Savers Credit encourages lower-income employees to save for retirement by giving them a tax credit based on a percentage of their contribution. It can apply to 401(k) plans, IRAs, and other retirement plans. Because it is additional to other tax-deferrals and deductions, it can help you get the most out of your retirement plan.

What are the income limits?

As of this writing, income requirements are as follows:

Single, married filing separately, or qualifying widow, with income up to $36,500

Head of household with income up to $54,750
Married filing jointly with income up to $73,000

Save up to $1,000 (or $2,000 for joint filing)

If you make contributions to a qualified IRA, 401(k), or certain other retirement plans, you may be able to take a credit of up to $1,000, or $2,000 if filing jointly. Depending on your adjusted gross income (AGI) and filing status, the Savers Credit rate may be 10%, 20%, or 50% of your contribution.

For example, a single taxpayer whose AGI is $25,000 and makes a $2,000 contribution to their 401(k) plan will have a credit rate of 10%, or a $200 savings on their tax bill.

In another example, a married couple with a joint income of $30,000 can each contribute $1,000 to their respective retirement plans – for a total contribution of $2,000. They will qualify for a 50% tax credit and reduce their tax bill by $1,000.

To determine how much your Savers Credit may be, refer to the IRS chart below.

2023 Savers Credit

Credit Rate	Married Filing Jointly	Head of Household	All Other Filers*
50% of your contribution	AGI not more than $43,500	AGI not more than $32,625	AGI not more than $21,750
20% of your contribution	$43,501 - $47,500	$32,626 - $35,625	$21,751 - $23,750
10% of your contribution	$47,501 - $73,000	$35,626 - $54,750	$23,751 - $36,500
0% of your contribution	more than $73,000	more than $54,750	more than $36,500

Source: IRS.gov

*Single, married filing separately, or qualifying widow(er)

Who Qualifies for the Savers Credit?

To be eligible for the Savers Credit you must have been born before January 2, 1993, cannot have been a full-time student during the calendar year, and cannot be claimed as a dependent on another person’s return.

How do I apply?

You can apply for the credit using Form 8880, Credit for Qualified Retirement Savings Contributions, or when using most electronic tax-filing services. For more information, visit the IRS website or contact your tax professional.

Stay up to date with Paychex retirement services.

Tags

Employee Benefits Retirement Taxes

We can help you tackle business challenges like these Contact us today

* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.