We know that talking about taxes is complicated and stressful. Concepts like ‘’IRS requirements’’, ‘’forms’’, or ‘’tax credit’’ may sound confusing, especially if you have never learnt how the U.S. tax system works. This is why thousands of people lose important benefits, just because they don’t know they exist or don’t understand how to apply for them.
So, let’s explain how a national tax benefit offered by the IRS can help certain people reduce the amount of taxes they owe, sometimes by up to half. Interesting, right? Let’s get started!
The IRS measure
The Internal Revenue Service (IRS) allows certain people to pay less taxes if they meet some requirements and do some specific paperwork when filing their annual tax return.
This benefit is thought for workers who save money for their retirement and are part of certain income levels. The tax relief works when someone files their tax return, whether digital or with help, and properly reports the money during the tax year.
Even though this benefit can directly reduce the final amount of taxes to pay, it’s still one of the least used credits nationwide.
Reducing up to 50% your taxes
This IRS benefit is called the Retirement Savings Contributions Credit and its purpose is simple: reward people who save money for retirement by helping them pay less taxes. Basically, this credit can reduce your taxes 10%, 20% or 50% out of the first $2,000 you have contributed to a retirement account during the year.
In short, you can reduce your taxes up to $1,000 (in cases of couples filing their tax return together, the reduction is up to $2,000). Have in mind that this credit is non-refundable, which means that you won’t receive extra money from the IRS, and it only lowers the amount of tax you owe (possibly reducing it to zero).
Who can enjoy this IRS benefit?
The IRS created this benefit for people with low- or middle-income and workers who actively save money for their retirement. The idea behind this benefit was to encourage saving in the long term and, at the same time, relieve the tax burden of those following the requirements.
Basic requirements
As it normally happens, not everybody can access this benefit. To be able to apply for it you have to follow these conditions:
- Be 18 years old or older.
- Not being a full-time student.
- Not be listed as a dependent on someone else’s tax return.
- Have made contributions to an approved retirement account.
- Stay within the income limits, which go up to $79,000 for married couples filing jointly in 2025.
Don’t you meet these requirements? Then, I’m afraid to say you can’t apply for this credit.
Which retirement accounts are valid?
Also, not every retirement account is valid to have access to this IRS benefit. The ones that will lead you to be eligible are the following accounts:
- 401(k) plans.
- 403(b) plans.
- Traditional IRAs.
- Roth IRAs.
So, only money saved in these types of accounts can be used to calculate the credit.
How can you claim this IRS credit?
If you were thinking this credit was automatically applied, let me tell you that’s totally the opposite. To receive it, every taxpayer must:
- File their federal income tax return.
- Include an extra form called Form 8880.
- Report the amount of money contributed to retirement accounts during the tax year.
The IRS updates the credit limits each year to keep up with inflation. This means the credit is still available for the 2025 tax year.
So…
If you qualify and have saved money in a retirement account, this IRS credit could make a real difference when you file your taxes. Knowing about benefits like this helps people make smarter financial decisions and avoid paying more than they need to.