October 28, 2025
People whose finances are too tight for proper retirement savings may find some added relief during tax season. One of the tax credits many people overlook is the Savings Contribution Credit, which the Internal Revenue Service makes available to low or moderate-income individuals and families. With a qualified retirement plan or IRA, the credit reduces federal income taxes and provides more incentive for saving.
Who Is Eligible?
Anyone who is a full-time student or considered a dependent on a separate tax return will not qualify. The credit is only extended to people who are over the age of 18. A person’s filing status and income level determine the amount of the refund, but the maximum for single filers is $1,000.
The maximum refund for married couples is $2,000. People who contribute to 501(c)(18)(D), 403(b), 401(k), IRA, 457, SEP or SIMPLE plans can take this credit as long as they meet the other qualification criteria.
For 2025, the income threshold for qualified individuals is $39,500, and the income limit for married couples is $79,500 (up from $38,250 and $76,500 respectively in 2024). For people filing as head of household, the threshold is $59,250 (up from $57,375 in 2024).
Retirement Savings Enrollment
For those who are W-2 workers, it is important to enroll in any employer-sponsored retirement plan which falls into any of the categories stated above. An option for self-employed individuals or those who are not offered employer-sponsored plans is a Roth IRA. All of the money contributed to a retirement savings plan up to the limits set by the IRS may be deferred from the total amount of federal taxable income.
How to Claim the Credit
It is important to make sure the credit has been deducted whether taxes are prepared by hand, using software or through a third party. Even though a third party may have considerable knowledge about tax deductions and credits, this is one credit which is missed even by many professionals. Anyone hiring a third party should ask about the Retirement Contributions Credit. The credit can be taken by using Form 1040A, Form 1040 and Form 1040NR, but people using Form 1040EZ cannot take the credit.
When using an electronic software program to prepare tax forms, be sure the program selects one of the applicable forms to use. For those preparing their forms by hand, it is best to use Form 8880 beforehand to calculate retirement savings contribution credit. Use Form 1040A, Form 1040 or Form 1040NR to fill in the information. On Form 1040NR, the amount is entered on line 47. On Form 1040, it is entered on line 50, and the amount is entered on line 32 of Form 1040A.
See IRS Publication 590 for further information about this credit. This literature is available online or in print from the IRS. Keep in mind, the income thresholds are subject to change from one year to the next, so always read the updated booklet each year. Research shows that only about 20% of people in the United States who qualify for this credit know about it. With the tax codes increasingly changing in an unfavorable way for taxpayers, it is helpful to know about and take every possible credit.
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