You may pocket a little extra cash on your tax refund while saving for your retirement with this little trick.

The Saver’s Credit has been a retirement incentive for lower and middle class Americans for years, yet most of us have never heard of it.

Uncle Sam will kick you back up to an extra $1,000 on your refund with this incentive — but only 36 percent of us have found that out, says a poll from Transamerica Center for Retirement Studies.

“It’s been around for almost 17 years now,” says Catherine Collinson, president of the Transamerica Center. “So many Americans are missing out on a tax credit simply because they don’t know about it.”

There are a couple of requirements to meet before earning this credit, though. Truth is, it’s not available to everyone, but it’s worth finding out.

It’s really a credit for lower- to middle-income earning Americans. Millions of them are missing out on some extra money yearly.

Am I eligible for the Saver’s Credit?

As long you’re over 18, with an Adjusted Gross Income — or annual pay after deductions like Social Security and Medicare are taken out — under $31,000, and currently saving for retirement, you should be eligible. Married couples who file jointly have a capped AGI limit of $62,000.

Those interested need to pay into some kind of retirement savings, whether through an employee-sponsored fund like a 401(k), or an Individual Retirement Account.

It ends up working out as an incentive for those who aren’t already saving for their retirement to start. If you currently don’t save for retirement, you can still qualify before you file. As long as you open an IRA and prepare your taxes before the April 18, 2018 deadline, you can claim the Saver’s Credit.

The 1040EZ form won’t work

You also can’t claim it by filing a 1040EZ, the tax form that those with a lower income are more like to use, says Collinson.

She’s been advocating for the IRS to allow the Saver’s Credit for those filing with a 1040EZ for over a decade, she says.

Collinson feels it’s a contradiction. And has never heard a clear reason why —only rumors — the IRS makes it so.

“People who have lesser income their lives are typically less complicated, and maybe more likely to use the 1040EZ form. So it’s counterintuitive, why not add it?” Collinson asks.  “I’ve heard anecdotally, so take with grain of salt, rather than update paper forms, they have invested their resources in the IRS Free File program, to make it easier for people to file more cost-effectively with their tax preparation software. And for free.”

A nonrefundable credit

Also the credit is nonrefundable, meaning it can’t actually boost your refund directly on its own — it can only lower your tax liability. Those who earn so little that they don’t have a tax liability won’t benefit from the Saver’s Credit.

“Now this is not to be confused with how much you owe or how much you are refunded, because that’s often a function of how much your employer took out of your paycheck versus deductions and so forth,” Collinson says. “This would be the actual tax amount owed for the year, and if the Saver’s Credit is only available up to the amount of tax that’s owed.”

In other words: if you are eligible to claim $500 of the Saver’s Credit, but only owed $300 in taxes, then you’d only be able to claim $300. It zeros out and can’t make you money, says Collinson.

Why haven’t we heard of it?

The Saver’s Credit was enacted as part of a law called the Extra Economic Growth and Tax Relief Reconciliation Act. The law was passed by Congress and signed by President Bush in 2001.

Commonly referred to as the Bush Tax Act, it was designed to lower tax rates and simplify retirement programs like IRAs and 401(k)s. It wasn’t permanent until 2006, when Pension Protection was enacted, Collinson says.

The language of the law, and the way the IRS referred to it, were different at the time.

“Everybody in D.C., all the retirement plan providers were calling it the Saver’s Credit, because that’s what it was legislated as,” Collinson says. “It turns out the IRS was calling it something different. They called it the Credit for Qualified Retirement Savings Contributions.”

A term that Collinson says wasn’t very “user friendly.” She testified before Congress around 2007, which prompted the IRS to cross-reference the names and update their materials.

At the time only 10 percent of Americans were aware of the Saver’s Credit. Awareness is slowly spreading.

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Meet the Author

Joe Pye

Joe Pye

Associate editor

Pye is the associate editor of

Budgeting & Saving, Retirement

401k, IRA, IRS, save money, tax refund, tax returns

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Article last modified on July 12, 2018 Published by, LLC . Mobile users may also access the AMP Version: This Retirement Savings Secret Pays Later And Today - AMP.