Improving the Saver’s Credit for Low- and Moderate-Income Workers

Millions of low- to moderate-income individuals have been unable to use the credit. The primary requirement to file for the credit is contributions to a qualified retirement plan. Among individuals whose income makes them eligible for the credit, many lack access to retirement accounts at work and cannot save through payroll deduction. For those individuals with the lowest incomes, not having a tax liability keeps millions of them from being able to use the credit as designed. In addition, by structuring the Saver’s Credit with steep drops in the credit rates, a taxpayer can lose a significant amount of the credit by earning just a single dollar in additional income.

The Saver’s Credit is woefully underutilized. From 2006 through 2014, between 3.25 percent and 5.33 percent of eligible filers claimed the credit, and the average value of the credit ranged from $156 to $174 over this time period.

A series of changes—some small and others more substantial—would enable more of the tax credit’s target population to benefit from the Saver’s Credit and build significant retirement resources. The most beneficial changes would be to restructure the credit into a match similar to the matching contribution some employers offer in their retirement savings plans and making the Saver’s Credit more like the Earned Income Tax Credit. Simplifying the tax-filing requirements would give low- and moderate-income individuals overall greater ease of use, helping them take advantage of a tax benefit that seeks to better balance the tax incentives for retirement across income levels.