BOSTON (TheStreet) -- A federal income tax credit of up to $2,000 may be overlooked by most Americans with retirement plans who can take advantage of it.


Saver's Credit

is designed as an incentive for low- to middle-income workers to save for retirement. But, according to the

Transamerica Center for Retirement Studies

, very few workers who may be eligible may even know it exists.

Even though it was introduced a decade ago, only 12% of full-time workers who could benefit know of the Saver's Credit, a survey shows.

The Saver's Credit may be applied to the first $2,000 of voluntary contributions an eligible worker makes to a 401(k) or similar employer-sponsored retirement plan or IRA. Credits of up to $1,000 for single filers and $2,000 for married couples are offered.

But only 12% of full-time workers with annual household incomes of less than $50,000 are aware of the credit, according to a survey conducted by the center of 3,598 full-time and part-time workers.

"There are people who meet the income eligibility requirement and are saving through a 401(k) plan who could be claiming the credit, but they just don't know about it," says Catherine Collinson, president of the center, which is funded by contributions from Transamerica Life Insurance.

The center is advocating improved outreach.

"It seems like over time it has gotten lost in the shuffle," she says of the credit. "It was introduced all the way back in 2001 and made permanent in 2006 with the Pension Protection Act. It is there and available, but I think the outreach has just moved on to other tax credits and other types of things."

Taxpayers can only claim the credit on Forms 1040A, 1040 and 1040NR.

"One of the concerns is that, especially for people saving in a 401(k) plan, it is not reflected on the 1040EZ form," Collinson says. "Lower- to middle-income workers are probably the most likely of all income levels to use the 1040EZ form, and because there's no place to put it on the form, they may be completely missing the tax credit ... and are simply not aware of it."

How to claim the credit

The credit is available to workers who have contributed to a company-sponsored retirement plan or IRA in the past year. Single filers with an adjusted income of up to $27,750 last year or $28,250 this year are eligible. For the head of a household, the adjusted income limit is $41,625 last year and $42,375 this year. For those who are married and file a joint return, the adjusted income limit is $55,500 last year or $56,500 this year.

The filer cannot be a full-time student or be claimed as a dependent on another person's tax return.

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If you are using tax preparation software to prepare your tax return, use Form 1040A, Form 1040 or Form 1040NR. If prompted, be sure to answer all questions about the Saver's Credit, Retirement Savings Contributions Credit and Credit for Qualified Retirement Savings Contributions.

If you are preparing your tax returns manually, complete Form 8880, the Credit for Qualified Retirement Savings Contributions, to determine the exact credit rate and amount. Then transfer the amount to the designated line on Form 1040A, Form 1040 or 1040NR.

-- Written by Joe Mont in Boston.

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