Did you know that, under certain conditions, Thrift Savings Plan contributions can earn a tax deduction and a tax credit? Before you get too excited, understand that very few federal employees may claim this benefit. Please consider sharing this information with others whether you qualify or not.
First, let’s review the main differences between tax deductions and credits.
- A tax credit reduces your tax liability dollar for dollar.
- A tax deduction reduces your taxable income.
- A deduction is worth only as much as the tax bracket you’re in, while a credit saves taxes dollar for dollar.
Although both can help lower your tax bill, the IRS describes a tax credit as a “dollar-for-dollar” reduction of your income, while a tax deduction reduces your taxable income.
The Saver’s Tax Credit is available to those who:
- Make tax-deferred contributions to an employer-sponsored retirement plan;
- Are 18 years or older;
- Are not full-time students; *
- Are not claimed as a dependent on another person’s tax return; and
- Meet the income limits described below.
*See the instructions for Form 8880, Credit for Qualified Retirement Savings Contributions, for the applicable definition of a full-time student.
The credit is 50%, 20%, or 10% of your retirement plan contributions up to $2,000 ($4,000 if married filing jointly). The maximum credit is $1,000 ($2,000 if married filing jointly).
Use the chart below to calculate your credit.
2024 Saver’s Credit
| Credit rate | Married filing jointly | Head of household | All other filers* |
| 50% of your contribution | AGI not more than $46,000 | AGI not more than $34,500 | AGI not more than $23,000 |
| 20% of your contribution | $46,001- $50,000 | $34,501 – $37,500 | $23,001 – $25,000 |
| 10% of your contribution | $50,001 – $76,500 | $37,501 – $57,375 | $25,001 – $38,250 |
| 0% of your contribution | more than $76,500 | more than $57,375 | more than $38,250 |
*Single, married filing separately, or qualifying widow(er)
Example: Nick is a federal employee and is single. He started working in October and earned $31,000 in 2024. His spouse was unemployed in 2024 and didn’t have any earnings. Nick contributed $2,000 to his TSP for 2024. After deducting the TSP contribution, the adjusted gross income shown on the joint return is $29,000. Nick, therefore, may claim a 50% credit of $1,000 for the $2,000 TSP contribution on the 2024 tax return.
Sharing this information with a new employee is an excellent way to demonstrate your appreciation for their decision to join the federal workforce. You might also share this with a young member of your family who may be making contributions to an IRA or a 401(k), as deposits to those accounts also qualify for the Saver’s Credit.
Note: For IRAs, one may still open an IRA and make qualifying contributions after December 31, 2024, before filing one’s 2024 taxes.
