link to page 1 
Updated April 22, 2022
The Retirement Savings Contribution Credit
The 117th Congress is considering legislation that would
Figure 1. Maximum Amount of Saver’s Credit per
modify the tax treatment of retirement savings. One
Individual, 2022
provision designed to encourage retirement savings for low-
By Filing Status and Income Level
income workers is the Retirement Savings Contribution
Credit (Internal Revenue Code [IRC] §25B), commonly
referred to as the Saver’s Credit. This In Focus provides an
overview of the credit and a brief discussion of the credit’s
effectiveness, in the context of various policy options,
including those under consideration in the 117th Congress.
The Saver’s Credit
Eligible low-income taxpayers may be able to claim a
nonrefundable tax credit for contributions to certain
retirement accounts. The maximum credit amount is $1,000
per person making eligible contributions.
To claim the tax credit, the individual making the
Source: CRS and IRC Section 25B.
contribution must (1) be at least 18 years old; (2) not be
As is discussed below, while the maximum amount of the
claimed as a dependent on someone else’s tax return; and
credit is $1,000 for each person making qualifying savings
(3) not be a full-time student.
contributions, most taxpayers claim much smaller amounts.
The maximum tax credit is available only to the lowest-
Retirement savings of up to $2,000 per person may be tax
income taxpayers who (1) are less likely to have a positive
credit eligible. Qualified retirement savings include
tax liability to reduce with a nonrefundable tax credit; and
contributions to traditional and Roth Individual Retirement
(2) are less likely to have the financial capacity to save.
Accounts (IRAs) as well as 401(k) and similar defined
contribution (DC) retirement plans. From 2018 through
Legislative Background
2025, contributions made by an individual to his or her
The Saver’s Credit was added to the IRC in the Economic
Achieving a Better Life Experience (ABLE) account may
Growth and Tax Relief Reconciliation Act of 2001
also be treated as qualified savings for the purposes of
(EGTRRA; P.L. 107-16). When the credit was enacted,
calculating the Saver’s Credit.
Congress believed that providing an additional tax incentive
The tax credit rate depends on a taxpayer’s filing status and
for low- and middle-income taxpayers would enhance their
the taxpayer’s adjusted gross income (AGI). The maximum
ability to save for retirement. Inadequate retirement savings
credit rate of 50% is available to taxpayers with AGI of
of low- and middle-income taxpayers was cited as a policy
$41,000 and below for married taxpayers filing joint returns
concern, and Congress observed that lower-income families
($30,750 for head of household [HoH] filers and $20,500
spend a larger portion of household budgets on necessities,
for other filers) in 2022 (Figure 1).
leaving limited resources for retirement savings. When first
enacted, the credit was temporary, initially scheduled to be
At certain AGI thresholds there are “cliffs.” At these cliffs,
effective for tax years 2002 through 2006.
the credit rate is immediately reduced. For married
taxpayers filing a joint return, the credit rate is reduced to
The Saver’s Credit was made permanent in the Pension
20% once AGI exceeds $41,000, and 10% once AGI
Protection Act of 2006 (P.L. 109-290). This legislation also
exceeds $44,000. Thus, if a taxpayer earning $41,000 and
indexed the income limits applicable to the Saver’s Credit
claiming a $1,000 credit earns one more dollar, the
to inflation beginning in 2007 (from 2002 through 2006 the
maximum amount of credit that could be claimed falls to
AGI thresholds were fixed).
$400. No credit is available for married taxpayers filing
The 2017 tax act (P.L. 115-97, commonly known as the
joint returns once AGI exceeds $68,000.
“Tax Cuts and Jobs Act”) temporarily, through 2025,
For head of household taxpayers, the credit rate is 20%
allows taxpayers to claim the Saver’s Credit for
once AGI exceeds $30,750, and 10% once AGI exceeds
contributions to ABLE accounts. ABLE accounts are a tax-
$33,000, with no credit for taxpayers with AGI above
favored savings program designed specifically for
$51,000. For all other filers, the threshold for the 20%
individuals with disabilities.
credit is $20,500, and the threshold for the 10% credit is
Saver’s Credit Statistics
$22,000, with no credit available once AGI is above
$34,000. These income thresholds are adjusted annually for
Few taxpayers claim the credit, and the average credit claim
inflation.
is small. For the 2019 tax year (the most recent data
https://crsreports.congress.gov
link to page 2 link to page 2 link to page 2 The Retirement Savings Contribution Credit
available), 6.1% of taxpayers claimed the Saver’s Credit,
to the Tax Policy Center, for 2022, an estimated 84.8% of
and the average credit amount claimed was $191 (Table 1).
taxpayers with cash income between $10,000 and $30,000
This is for all taxpayers, regardless of whether they have
did not have a positive income tax liability. For cash
AGI that would make them eligible.
incomes in the $30,000 to $50,000 range, 56.5% did not
have a positive tax liability. For the lowest-income
Since the credit first became available in 2002, the share of
taxpayers, those with positive cash incomes of less than
taxpayers claiming the credit has slowly trended up. In
$10,000, 99.8% had no tax liability. Since the Saver’s
2002, 4.1% of tax returns filed had a Saver’s Credit claim.
Credit is nonrefundable, only taxpayers with positive tax
The average credit amount was $199 the first year the credit
liability can potentially benefit from the credit.
was available (in 2002). Average credit amounts fell during
the late 2000s, before rising again to the current level.
Even if the Saver’s Credit encourages additional retirement
savings, it may not increase overall savings. One barrier to
The take-up rate for the credit varies across the income
retirement savings is the early withdrawal penalty for
distribution. At very low levels of income, those with AGI
certain types of accounts. If the Saver’s Credit helps
below $10,000, 0.01% of taxpayers claim the credit. Few
overcome this barrier, it is possible that taxpayers choose to
taxpayers at this income level have a positive tax liability.
shift other forms of savings into retirement accounts, but do
The taxpayers who do claim the credit from these income
not necessarily increase total savings.
groups, however, tend to claim higher credit amounts.
These taxpayers are eligible for the 50% tax credit rate.
Lack of awareness of the credit might also limit efficacy.
Having zero or negative AGI in a given year may be
Survey evidence suggests that many taxpayers are not
temporary, and taxpayers in this position may be able to
familiar with the credit. The credit fails to nudge taxpayers
draw on other resources to make retirement contributions.
to save more for retirement if they do not know it exists.
In the 2019 tax year, 15.5% of taxpayers with AGI of
While evidence suggests that the Saver’s Credit may not be
$25,000 up to $50,000 claimed the Saver’s Credit.
effective at increasing savings, some taxpayers do respond
Depending on their filing status, taxpayers in this AGI
to the credit. There is some evidence that taxpayers “bunch”
group may have a lower credit rate (20% or 10%), or not be
at the income threshold amounts, adjusting income to
eligible for the Saver’s Credit at all. For taxpayers in this
maximize tax credits at points just below the cliff.
income group claiming the Saver’s Credit in 2019, the
average credit amount was $200.
Legislation in the 117th Congress
The Securing a Strong Retirement Act of 2022 (SECURE
In the $50,000 to $75,000 AGI group, only head of
2.0) (H.R. 2954), as was passed in the House on March 29,
household and married taxpayers filing joint returns with
2022, would modify and seek to promote the Saver’s
AGI below the final income thresholds could claim the
Credit. The credit rate would be modified to be a flat 50%.
credit, and the maximum credit amount was $200 per
The credit would phase out once AGI exceeds specified
contributor (or $400 for a married couple filing jointly).
threshold amounts ($48,000 for joint filers; $36,000 for
Table 1. Share of Tax Returns Claiming Saver’s Credit
HoH; and $24,000 for others). The credit would be fully
and Average Credit Amount, 2019
phased out for joint filers at $83,000 ($62,250 for HoH;
$41,500 for others). The threshold amounts would be
AGI
Share Claiming
Average Credit
indexed for inflation. The JCT has estimated that these
No AGI
0.0%
changes would reduce federal revenue by $7.6 billion
a
$954
$1-<$10K
0.0%
between FY2022 and FY2031. The reduction in revenue
a
$177
$10K-< $25K
7.4%
$177
would be $1.9 billion per year in FY2028 to FY2031, as
$25K-<$50K
15.5%
$200
implementation would be delayed until after 2026.
$50K-<$75K
6.7%
$175
$75K+
0.0%
$0
Another provision in H.R. 2954 would direct the Treasury
to promote the Saver’s Credit, and provide a report to
All Taxpayers
6.1%
$191
Congress on the anticipated promotion efforts. The JCT
Source: CRS and IRS Statistics of Income (SOI).
estimates this provision would reduce federal revenue by
a. The share claiming the credit is nonzero but rounds to 0.0%.
$0.4 billion in the FY2022-FY2031 budget window.
The Joint Committee on Taxation (JCT) estimates the
Saver’s Credit reduces tax revenue by $6.9 billion for the
The Retirement Security and Savings Act of 2021 (S. 1770)
five-year FY2020-FY2024 period, or $1.4 billion per year.
proposes modifications to the Saver’s Credit. Most notably,
it would make the credit refundable while requiring that the
Does the Credit Increase Savings?
credit be contributed to a retirement account. The
Empirical studies have not found the Saver’s Credit to be
Encouraging Americans to Save Act (S. 2452) would
effective at increasing retirement savings among the target
replace the Saver’s Credit with a 50% tax credit on up to
population (low-income taxpayers). Overall, the take-up
$2,000 in qualified savings, again with credits contributed
rate for the Saver’s Credit is low. Further, it is not clear that
to retirement accounts.
the Saver’s Credit results in additional savings, as opposed
to rewarding taxpayers for savings that would have
Molly F. Sherlock, Specialist in Public Finance
occurred without the Saver’s Credit.
IF11159
A feature of the tax credit that potentially limits
effectiveness is that the credit is nonrefundable. According
https://crsreports.congress.gov
The Retirement Savings Contribution Credit
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11159 · VERSION 3 · UPDATED