When you’re in your 20s, your tax filing is usually pretty straightforward. Unless you buy a house or you travel a lot for your job, you’re not going to be claiming a lot of deductions, aside from writing off the interest you’re paying on your student loans.

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While that means less paperwork at tax time, it also means more money you may have to pay to Uncle Sam. One of the ways you can offset what you owe is to sniff out every credit you’re eligible for. Unlike deductions, which lower your taxable income, credits reduce what you owe on a dollar-by-dollar basis.

The tax saver’s credit, for example, is designed to benefit lower income workers who are making an effort to set aside money for retirement. Unfortunately, only 23 percent of taxpayers who qualify for the credit are aware that it exists and even fewer actually claim it.

For 20-somethings who are just starting out in their careers and aren’t bringing in a lot of money yet, claiming the saver’s credit should be a no-brainer. If you’re not sure whether you’re eligible, MyBankTracker has put together a quick guide on how the credit works so you can get the most out of your tax filing.

Who qualifies for the tax saver’s credit?

The IRS rules for claiming the credit are fairly simple. You have to be 18 or older and you can’t be claimed as a dependent on someone else’s return. If you’re still enrolled in school full-time, you’re not eligible. Contributions to your 401(k), 403(b), SIMPLE IRA, traditional or Roth IRA all count for the purposes of claiming the credit. If you’re self-employed and have a SEP IRA, the credit is based only on the contributions you make as an employee.

Aside from these basic criteria, you also to be within certain income guidelines, which vary based on your filing status. If you’re a single 20-something, you qualify as long as your adjusted gross income (the amount you earn minus any deductions or exemptions) is less than $30,000 for 2015. If you’re married, you can still get the credit as long as your joint earnings are not more than $60,000.

Calculating its worth

The credit’s value is limited to either 50, 20 or 10 percent of the first $2,000 you put into a qualified retirement plan. If you’re married, it doubles to $4,000. The actual amount of the credit you can get depends on your income so it pays to know up front how much you’ll benefit by saving the money.

For example, if you’re single and you earned $18,000 or less last year, you’d qualify for a 50 percent credit on your contributions. If you chipped in $2,000 or more, the credit would come up to $1,000. On the other hand, if you earned more than $19,501 but less than $30,000, you’d only get a 10 percent credit, which would put its worth at $200 instead.

Beginning in 2015, the income phaseout limits increase slightly to $30,500 for single filers and $61,000 for married couples. Keep in mind that you can’t claim the tax saver’s credit for any IRA contributions that you made as the result of a rollover. If you end up taking money back out of your retirement account during the year, it can reduce how much of a credit you’re eligible for.

Picking the right spot for your savings

If you want to cash in on the saver’s credit but you haven’t made any contributions to a retirement account yet, you’ll want to review your options to make sure you pick the right one. For most 20-somethings, an employer’s 401(k) is the logical choice, especially if you’re able to take advantage of matching contributions. For 2015, you can save up to $18,000 of your pay in a 401(k).

If you don’t have a 401(k) through your job, a traditional or Roth IRA is the next best thing. You can put up to $5,500 in either one for the year and if you already qualify for the saver’s credit, you should also be able to deduct your traditional IRA contributions. Taking the deduction on top of the credit can shrink your tax bill or grow your refund even more.

Timing counts for contributions

If this is your first time filing taxes on your own, you’ll have to decide which tax year you want to try and claim the credit for. While December 31st is the cutoff for contributions to 401(k) or similar employer plan, you still have until the April 15th filing deadline to fund a traditional or Roth IRA for 2014. If you’re thinking of opening an IRA, you’ve got a few months to tackle that goal.

As long as you’re designating your contributions correctly, you can claim the saver’s credit for the 2014 tax year, while setting aside money towards the 2015 contribution limit. You can also continue saving through your employer’s plan, although whether or not you’ll be able to deduct your traditional IRA contributions depends on how much you earn.

Final word

When it comes to your taxes, every penny counts and it’s easy for 20-somethings to overlook valuable credits and deductions. If you’ve been telling yourself that you can’t afford to work on building your nest egg yet, being able to claim the tax saver’s credit is an excellent incentive to get you started.

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