The Savers Credit and Savers Match

 

I am looking at a tax change for 2027.

It is an expansion of an existing retirement provision, one that I very rarely see because of its income limitations. I like the intent, however.

Let’s talk about the retirement savers match, which is the post-2026 version of the retirement savers credit. The credit was created in 2001 in an effort to encourage low- and moderate-income workers to save for retirement. It provided a tax credit of 50% on retirement contributions of up to $2,000. The maximum credit per person was therefore $1,000 ($2,000 times 50%). The maximum for qualifying marrieds would be twice that amount: $2,000 for the two spouses.

There were two immediate issues with the savers credit. First, the income limitations were relatively low and - in addition – clumsy. For example, here are the income limitations for marrieds filing jointly: 

		50%	20%	10%
		Adjusted Gross Income Of
Married filing jointly		$48,500	$48,501 to	$52,501 to
		and below	$52,500	$80,500

Marrieds with AGI of $70 grand and contributing $1,500 to a 401(k) would receive a credit of $150 ($1,500 times 10%) – maybe.

The second issue was that “maybe”: the credit was nonrefundable. Say that your tax had already been reduced to zero (via child tax credits, for example). Your savers credit of $150 would now be worth $-0- because tax was already at zero and any excess below zero could not be refunded.

There is no surprise that the Aspen Institute estimated that only 25% to 30% of eligible taxpayers even claimed the savers credit.

Starting in 2027 the savers “credit” will change to a savers “match.”

While the income limitations remain relatively low, there are two main changes:

(1)  The credit is now refundable, and

(2)  The money will go to your retirement account, not to you via a tax credit. There is a de minimis exception of $100, in which case you can choose to treat the match as a tax credit on your return.

Congress replaced the 50%/20%/10% scheme with something closer to a sliding scale, with a slight bump in allowable income.

		Full 50%	Partial	No
		Match	Match	Match
		Adjusted Gross Income Of
Married filing jointly		$41,000	$41,001 to	$71,000
		and below	$70,999	and above

There are - of course - eligibility requirements:

• Be at least age 18 by the end of the tax year.
• Make qualifying retirement savings contributions.
• Not be claimed as someone else’s dependent.
• Not be a qualifying full-time student.
• Meet the applicable income requirements.

You can anticipate a bit of behind-the-scenes programming to make this work. For example, say that your employer offers a 401(k) and elects to accept the savers match to your account. Implementation is going to require time. Fortunately, the first returns to qualify for the match will the 2027 returns due on April 15, 2028. The old law is still in place for 2026 returns due on April 15, 2027.

COMMENT: Note that the money is from the federal government, not from your employer.

While an employer may accept the match, it is not required to do so. I presume that the match would instead go to an IRA in your name, as it cannot go to your employer-based plan.

BTW one does not need an employer-based plan to power the match. The match is looking at retirement savings, and a contribution to your IRA will work. In fact, one could fund a Roth IRA and still receive the savers match. Mind you, the match would be pre-tax (that is, like a regular IRA) and not Roth, but it is still free money.

Not surprisingly, rollover contributions will not qualify. The Code is looking for fresh retirement money.

There is also a clawback should someone abuse the intent of the match. Withdrawal of contributions generating a match during a “testing period” will allow the IRS to recover 100% of the match. Congress wants to reward long-term savings, not short-term binges.

Is Sending A Form Taxpayer Self-Assessment?

 

There are times we need to remember that we are working with law.

Words in law can have very specific meanings.

Let’s look at three Code sections.

Code § 6201 - Assessment authority

(a) Authority of Secretary 

 

The Secretary is authorized and required to make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title, or accruing under any former internal revenue law, which have not been duly paid by stamp at the time and in the manner provided by law. Such authority shall extend to and include the following:

(1)  Taxes shown on return

The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists (or payments under section 6225(c)(2)(B)(i) are made under this title.

Code § 6211 - Definition of a deficiency

(a) In general

For purposes of this title in the case of income, estate, and gift taxes imposed by subtitles A and B and excise taxes imposed by chapters 41, 42, 43, and 44 the term "deficiency" means the amount by which the tax imposed by subtitle A or B, or chapter 41, 42, 43, or 44 exceeds the excess of—

(1) the sum of

(A) the amount shown as the tax by the taxpayer upon his return, if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus

(B) the amounts previously assessed (or collected without assessment) as a deficiency, over—

(2) the amount of rebates, as defined in subsection (b)(2), made.

Code § 6213 - Restrictions applicable to deficiencies; petition to Tax Court

(a) Time for filing petition and restriction on assessment

Within 90 days, or 150 days if the notice is addressed to a person outside the United States, after the notice of deficiency authorized in section 6212 is mailed  (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the last day), the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. Except as otherwise provided in section 6851, 6852, or 6861 no assessment of a deficiency in respect of any tax imposed by subtitle A, or B, chapter 41, 42, 43, or 44 and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 90-day or 150-day period, as the case may be, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 7421(a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court, including the Tax Court, and a refund may be ordered by such court of any amount collected within the period during which the Secretary is prohibited from collecting by levy or through a proceeding in court under the provisions of this subsection. The Tax Court shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for a redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition. Any petition filed with the Tax Court on or before the last date specified for filing such petition by the Secretary in the notice of deficiency shall be treated as timely filed.

Let’s talk about Ken and Juli Walker.

They filed a joint tax return for 2018.They reported adjusted gross income of approximately $110 grand, requesting a federal refund of approximately $2,100.

They left something out, however: Marketplace insurance for which they had received advance premium payments of $20,904.

COMMENT: The Marketplace refers to the Affordable Care Act, also known as Obamacare. One guesstimates his/her income for the upcoming year, and - if income is low enough - one is entitled to a subsidy. The subsidy can be handled one of two ways: first, as a monthly reduction of any premium otherwise due; second, as additional tax paid-in when filing the return next year. The advantage to the first is immediate reduction of premiums due now. The advantage to the second is dry powder in case one is over-subsidized. I do not immediately recall a client electing the second option.   

There is a potential problem, though. The subsidy is based on your income, and you are guessing at your income when you request the subsidy. Eventually you have to settle-up this guess by attaching a reconciliation to your tax return - Form 8962 – calculating what your subsidy should have been had you used the actual, final numbers on your tax return. If actual income is lower, you probably have a refund coming. If actual income is higher, you are probably writing a check to the IRS.

In September 2019 the IRS sent a notice requesting Form 8962.

In December 2019 the Walkers sent the 8962.

The IRS processed the form and in March 2020 sent a notice of assessment for $20,904, fully attributable to the ACA subsidy.

By October 2021 interest and penalties had swelled the balance to $27,297. The IRS issued a Notice of Intent to Levy.

The Walkers requested a Collection Due Process hearing.

COMMENT: The Notice of Intent to Levy starts a 30-day calendar on the taxpayer’s ability to stop the lien, which the Walkers did by requesting a CDP hearing.  Mind you, a CDP hearing is not an end-all. For example, one generally cannot contest the existence of the liability itself in a CDP. One would have gone through numerous notices to get to this point, and the IRS would have lost patience. If the taxpayer wants to contest the liability, he/she will have to consider alternatives such as audit reconsideration or an offer in compromise. The IRS wants a payment program as the product of a CDP hearing.

The Walkers requested an installment agreement. The reason they gave was as follows:

Taxpayers do not believe that they agreed to this assessment and do not understand it. If the assessment is correct, taxpayers dispute the penalties because of the IRS’s inactivity on the matter during the pandemic. If there is a liability, taxpayers request an installment agreement.”

There was back and forth, and in January 2024 the (IRS) Settlement Officer decided that the Walkers owed the tax. She did allude to the need for the taxpayers to do something more if they wanted to contest the tax liability itself:

Beside your general statement, you did not submit an amended return or a substantive reconsideration request.”

The taxpayers – surprisingly – withdrew their request for an installment agreement.

At this point, I would normally lose hope for the Walkers. I do not see an immediate way to avoid repaying the excess subsidy, but I nonetheless would have pressed for a payment plan. I would also have requested penalty abatement, as you won’t receive one without asking.

But there is a major technical issue here: had the IRS checked all the boxes to be able to collect the tax?

Let’s go back to the Code sections at the beginning of this post.

Section 6201 addresses what happens when you send in a return showing a tax liability: the system self-assesses. The IRS will ride piggyback on that assessment. Easy. Makes sense.

That is not what happened with the Walkers. The return as originally filed showed a refund, not a liability. The Walkers never filed a return that showed a liability. The Walkers sent a Form (8962) to the IRS, which the IRS processed and somehow generated a liability.

Question: did sending that 8962 create a liability that could be assessed?

We need to be careful with words here. No question the 8962 created a number that – when combined with other numbers on the return – resulted in a liability. What it did not do is show a liability on its own power. Somebody had to do math.

Here is an example: what if the taxpayer had inadvertently omitted estimated tax payments exceeding the subsidy recapture shown on Form 8962? There would be no additional tax, and there would be an additional refund instead.

Here is the Court:

However, we reject respondent’s additional contention that petitioners’ completion of Form 8962 reflects additional tax due which may be assessed under section 6201.”

If this is not an assessment under Section 6201, what is it?

It is a deficiency under Section 6211.

So what?

Look at the italicized portion of Section 6213 above.

… no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer,….

A deficiency presumes that the IRS is matching, changing, moving, eliminating numbers. The IRS is doing math.

And the Code wants a notice mailed to the taxpayer alerting him/her of what the IRS is doing.

There are procedures for enforcing a deficiency, and one is key. We have called it many names over the years - a statutory notice of deficiency, a NOD, a SNOD, a 90-day letter. These are all terms for the following notice:

Code section 6213 requires the IRS to issue a SNOD before it can enforce a deficiency.

What did the IRS fail to do with the Walkers?

Yep, it failed to send a SNOD.

Here is the Court:

With respect to the proposed levy action before us - and having determined the IRS failed to issue a Notice of Deficiency despite … being legally required to do so - we hold that the IRS may not proceed with the collection of the Assessment.”

Howaboutthat?

The Walkers won their case on an especially narrow technical point. Still, a win is a win.

Our case this time was Walker v Commissioner, T.C. Memo 2026-4.