This credit used to be known as the “Retirement Savings Contribution Credit.” If you qualify you can claim a credit of up to $1000 for eligible contributions to qualified IRA, 401k, and certain other retirement plans. Since this credit is not refundable it can’t be larger than the tax amount the taxpayer would have had to pay without the credit.
Currently single filers can get a 50% credit of their eligible contributions if their AGI is up to $16,500; a 20% credit if their income is up $18,000: and a 10% credit if their income is up to $27,750. If the single filer’s AGI is over $27,750 they are not eligible for the credit.
A credit equal to 50% of eligible retirement contributions sounds nice but most people making $16,500 and less are probably not contributing or not contributing much to a retirement plan. My guess is that most people who take the credit are those who are eligible for the 10% rate. Although this credit is a nice perk for some I doubt it is actually enticing people to contribute to their retirement plans.
If your income is under $27,500 though be sure to check if you are eligible for this credit. The Saver’s Credit is probably one of the most overlooked credits.
If you owe a small amount in taxes it might be worthwhile to make an eligible retirement contribution just to take advantage of this credit considering you would get 10-50% of your money back.