Form 8880 Income Limits for the Saver’s Credit

The Credit for Qualified Retirement Savings Contributions, often called the Saver’s Credit, is a non-refundable tax credit available to taxpayers with low-to-moderate incomes to help them save for retirement. It is claimed using Form 8880, Credit for Qualified Retirement Savings Contributions. Unlike a deduction, which lowers your taxable income, a credit directly reduces your final tax bill, dollar for dollar.

Eligibility Requirements for the Saver’s Credit

Before considering income, a taxpayer must satisfy three other requirements to qualify for the Saver’s Credit. The first is an age requirement; the individual must be at least 18 years old by the end of the tax year.

A second condition is that the taxpayer cannot be claimed as a dependent on someone else’s tax return. This rule excludes younger individuals, such as college students who are still financially supported by their parents, from claiming the credit.

The final requirement relates to student status. An individual is ineligible if they were a full-time student for any part of five calendar months during the year. The IRS defines a full-time student based on the criteria set by the educational institution.

Income Limits and Applicable Credit Rates

Eligibility for the Saver’s Credit and the specific rate you receive are determined by your Adjusted Gross Income (AGI). Your AGI is your gross income minus certain deductions. The credit amount is a percentage of your retirement contribution, and that percentage—50%, 20%, or 10%—decreases as your AGI increases.

For the 2024 tax year, the AGI limits are set by filing status. For those who are Married Filing Jointly, an AGI up to $46,000 qualifies for the 50% credit rate. An AGI between $46,001 and $50,000 qualifies for the 20% rate, and an AGI between $50,001 and $76,500 qualifies for the 10% rate.

Heads of Household have different thresholds. An AGI up to $34,500 allows for the 50% credit rate. The 20% rate applies to an AGI between $34,501 and $37,500, while the 10% rate applies to an AGI between $37,501 and $57,375. For all other filers, including Single and Married Filing Separately, the 50% rate is for an AGI up to $23,000, the 20% rate is for an AGI between $23,001 and $25,000, and the 10% rate is for an AGI between $25,001 and $38,250.

Calculating Your Maximum Contribution

The amount of your credit is based on the contributions you make to a qualified retirement plan. Qualifying contributions include elective deferrals to plans like a 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan. Contributions made to a traditional or Roth IRA also count, as do voluntary after-tax contributions to certain qualified plans.

While you can contribute up to the legal limit for your specific retirement accounts, the Saver’s Credit calculation is capped. The maximum contribution that can be used for the credit is $2,000 for single filers and $4,000 for those married filing jointly. This means the largest possible credit is $1,000 for an individual or $2,000 for a couple, achieved if they fall into the 50% credit rate category.

Your total qualifying contributions must be reduced by any distributions you received from a retirement plan. This look-back period includes the current tax year, the two preceding tax years, and the period after the end of the tax year but before you file your return. For example, if a single filer contributed $2,500 to their 401(k) but took a $1,000 distribution last year, only $1,500 of their contribution would be eligible for the credit calculation.

How to Claim the Credit Using Form 8880

To claim the Saver’s Credit, you must complete and attach Form 8880, Credit for Qualified Retirement Savings Contributions, to your Form 1040 tax return. This form walks you through the calculation, starting with your total contributions to various retirement accounts.

The form then directs you to enter any recent retirement plan distributions you may have received, which are subtracted from your total contributions. You will then enter your Adjusted Gross Income from your Form 1040. Based on your AGI and filing status, you will determine your applicable credit rate.

The final calculation on Form 8880 multiplies your eligible contribution amount (up to the $2,000 or $4,000 limit) by your determined credit rate. This result is your total Saver’s Credit. The final step is to transfer this credit amount from Form 8880 to the appropriate line on Schedule 3 (Form 1040).