Reports indicate that only about one in eight of those currently eligible for the saver’s credit take advantage. What do NAPA Net readers think?
Well communication may be part of the problem, but not among the respondents to this week’s poll. Nearly two-thirds (63%) of respondents say they mention/promote the saver’s credit in their plan communications, and more than a quarter (26%) say they do sometimes. The rest? Well, they don’t, but not always because they wouldn’t like to. “It is totally overlooked most times,” explained one. “We don't see census data to encourage it many times.”
Communication Stations
Those communications are less common by the plan sponsors that respondents work with. Only about a third (31%) do so regularly, with nearly as many (29%) doing so “sometimes.” However, 1 out of 10 say it depends, and nearly a third (29%) do not.
Those trends are largely mirrored in what respondents see their recordkeeper partners doing. A clear plurality (48%) sometimes communicate regarding the saver’s credit, while more than a quarter (26%) do with regularity, and 27% don’t see any activity on that front. “I never see it mentioned, very unfortunate,” noted one reader.
As mentioned above, even though there is a lot of support for the concept of the saver’s credit, the take-up rate on the feature has consistently underperformed expectations. Asked to weigh in on the factors that are holding adoption back, this week’s respondents identified (more than one answer permitted):
84% - Ignorance of the option
63% - They don’t file a 1040 (they might instead file 1040-EZ)
35% - Their tax preparers aren’t aware/don’t ask
15% - Can’t afford to save (even if the saver’s credit pays for it)
5% - Embarrassed to file for the credit
As one reader explained, “Low income people cannot defer and do not take advantage of the credit. They live paycheck to paycheck and want the cash now instead of deferring and getting a credit, which is less than they defer, in the following year. They also most likely do not understand how taxes and tax credits work.”
Another said, “When people want their tax refund immediately and get their returns prepared with only the most recent pay stub that may not even have year-to-date deductions, who cares about the credit?”
Holding (Off) Patterns
Asked to winnow it down to a primary reason, though, this week’s respondents highlighted:
58% - Ignorance of the option
27% - Can’t afford to save
15% - Don’t file a 1040
We asked readers about their suggestions for expanding utilization of the saver’s credit, and they said:
47% - Allow individuals to take the credit that file Form 1040-EZ
28% - Expand/increase the limits so more could take advantage
18% - Beef up plan communications
7% - Undertake a program to educate tax preparers as to how the credit works
One reader added, “Not allow a tax filing without a W-2.” Or, as one reader noted, “Mostly beef up communications, but also allow the credit on the EZ. Yeah, yeah, I know the more stuff you add the less ‘EZ’ it gets, but still.”
Reader Comments
We got a number of reader comments – here’s a sampling:
“I am wondering if the fact that it is a credit only on taxes owed might be why it is not that widely used. It just might not apply. Expanding the income limits and possibly allowing the credit to be funneled to an IRA or to their DC plan, especially if it cannot be applied against taxes owed (since there might not be any owed) could be a viable solution. I would not like to see it refunded to the employee, but rather used to help beef up their retirement savings.”
“In some states that have higher average incomes, there are less people who can qualify for the saver’s credit. Usually the hardest problem I have is getting the people who are eligible for the credit to start savings in the first place. As far as why those who do qualify but don’t take it, the only thing I can think of is ignorance that it exists or tax prep software that overlooks it.”
“With most taxpayers using web-based tax software or a tax preparation service that will automatically include the credit if it applies, I don’t believe that lack of knowledge of the credit is the greatest factor. Frankly, I wasn’t aware the credit could not be claimed on 1040-EZ but that seems the most obvious reason for lack of uptake. I include a brief discussion of the credit in every participant meeting. Even if the participant in my meeting cannot claim the credit (due to income limit), it may apply to his/her child or sibling.”
“I am not even sure of the limits I am embarrassed to say!” (For more information, see “7 Things You May Not Know About the Saver’s Credit (and 4 You Should).”
“We feel like education is key; we include the saver’s credit info along with the IRS form in our first communication/education package each year, and we mention it in all meetings. We have been promoting this since inception, and once the participant knows about it, most do take advantage. We post flyers on message boards in break rooms and plan sponsor servers where employees have access, and we have encouraged our participants to share the info with other family members, church members, friends, etc. to spread the word.”
“Recommend expanding the coverage. Go all the way up to 100k for a married couple and 50k for single in AGI. Also, increase the credit to 50% across the board up to $2,000 credit. Maybe even do 100% credit up to $2,000 on 40k for married and 20k for single in AGI.”
“I have a new client whose employees would easily qualify for the tax credit. I would love to know how I could recommend them adding it to their tax returns.”
“I mention the Saver’s Credit every time I do participant education. However, that doesn’t mean anyone remembers it when it comes time to prepare their tax returns. I believe it’s the lack of awareness that’s the primary reason for the low take-up rate. This year, I think I’ll address it directly with clients over the next couple of months. Perhaps they can reach out to their employees. We could also put a link up on our website.”
“I used to bring the tax credit up for years yet I never received feedback that it was being used. Do tax programs like Turbo Tax take it into consideration? I doubt those who would benefit from the tax credit have someone do their taxes professionally. Making sure they are available via these programs would be great.”
Thanks to everyone who participated in this week’s NAPA Net reader poll!
See also “7 Things You May Not Know About the Saver’s Credit (and 4 You Should).”
