Luckily for seniors, the IRS has provided ways to reduce their tax liabilities through special tax credits and deductions.
Generally speaking, elderly tax-filing requirements differ according to where their income falls
We're here to address the common uncertainty among seniors about the necessity of filing a tax return.
Tax season is always stressful regardless of how often you’ve filed your taxes. It can be even more stressful for the elderly, as retirement income can come from several different sources. This often leaves seniors wondering if they need to file a tax return. In this article, we’ll help you determine whether or not you need to.
Do Seniors Have to File Taxes?
Unfortunately, every person’s situation is slightly different, so to tell for certain whether or not you need to file a tax return, you might want to consult a licensed CPA. CPAs are tax professionals trained to analyze your situation and make personalized recommendations. However, some general income thresholds apply to most people. Generally speaking, elderly tax-filing requirements differ according to where their income falls below the following thresholds:
|Head of Household
|Head of Household
|Married Filing Jointly
|Under 65 (Both Spouses)
|Married Filing Jointly
|Over 65 (One Spouse)
|Married Filing Separately
|Qualifying surviving spouse
|Qualifying surviving spouse
|65 and Older
However, it’s important to note that the income thresholds above are only for taxable income. As we’ve alluded to, not all income is taxable for seniors. For example, if you take distributions from a Roth IRA after age 59.5, that income is considered non-taxable investment income for retirees.
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Tax Filing Tips for Seniors
It’s no secret that filing a tax return isn’t the easiest thing in the world, especially if you itemize your return. If you are itemizing your return, keep detailed receipts of everything you plan on writing off, whether that be medical expenses, charitable donations, or other deductions you can take when you itemize.
Regardless of whether you take the standard deduction or itemize your returns, hold onto every 1098, 1099, and any other tax documents received. And lastly, if you’re uncomfortable filing your return yourself, be sure to ask for help from one of the free resources above or a trusted CPA!
How Can Seniors File Taxes?
Filing taxes is often daunting, especially if you do so yourself. Luckily though, there are quite a few helpful resources that seniors can take advantage of when filing their return, such as:
- IRS Free File: Free software provided by the IRS for those with less than $73,000 in adjusted gross income.
- Paid Filing Software: Several paid softwares exist for those who don’t qualify for IRS Free File
- Certified Public Accountants: You can hire a local accountant to prepare and file your return if you’re not comfortable doing so.
- Tax Counseling for the Elderly (TCE): A free program for filers aged 60 and older that can help seniors prepare basic tax returns.
- Volunteer Income Tax Assistance (VITA): A free program providing in-person assistance for those who make less than $60,000 annually.
Tax Credits and Deductions for Senior Citizens
Luckily for seniors, the IRS has provided ways to reduce their tax liabilities through special tax credits and deductions. Before we dive into exactly what these credits and deductions are, it’s important to understand the difference between tax credits and tax deductions.
A tax credit is a dollar-for-dollar reduction of your tax burden. This means that a $100 credit will reduce the amount of taxes you owe by $100.
However, a tax deduction reduces your taxable income. If you receive a $100 tax deduction, your taxable income will decrease by $100. If you are in the 12% tax bracket, a $100 tax deduction will save you around $12 on your tax bill.
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Senior Citizen's Tax Credits
- Senior Tax Credit for the Elderly and Disabled: This credit is available for seniors aged 65 and older, or those who are retired on permanent and total disability and have received taxable disability income for the tax year. The credit amount varies based on income, filing status, and the amount of non-taxable Social Security or other nontaxable pensions received.
- Earned Income Tax Credit (EITC): While typically associated with working individuals, seniors still working and earning income may qualify for the EITC. This credit benefits low- to moderate-income individuals and can significantly reduce the tax burden.
- Child and Dependent Care Credit: Seniors responsible for dependent care expenses, such as a disabled spouse or dependent, may be eligible for this credit. It assists with the costs of care that enable the taxpayer to work or actively look for work.
- Credit for Other Dependents: Seniors who support other dependents, like an adult child with a disability or a dependent relative, might qualify for this credit. It offers a non-refundable credit for dependents not qualifying for the Child Tax Credit.
Tax Deductions for Seniors
- Medical and Dental Expenses Deduction: Seniors often face higher medical expenses. These expenses can be deducted if they exceed a certain percentage of their adjusted gross income. This includes long-term care, prescription medications, and health insurance premiums.
- Investment and Property Tax Deductions: Seniors who itemize deductions can deduct property taxes and some investment-related expenses. This can include mortgage interest and real estate taxes on owned property.
- Charitable Contributions: Seniors who donate to qualified charities can deduct these contributions if they itemize their deductions. The limit for these deductions can vary based on income and the type of contribution.
- Investment Interest Expense Deduction: Seniors who have investments and pay interest on money borrowed to invest can often deduct this interest expense. This is mainly relevant for those with income-generating investments outside of retirement accounts.
- Long-Term Care Insurance Premiums: Premiums paid for qualified long-term care insurance can be deductible, subject to certain limits based on age. This deduction is important for seniors who are planning for potential long-term care needs.
Do Seniors on Social Security Have to File Taxes?
Unfortunately, some seniors must pay taxes on their Social Security income. Exact requirements vary depending on the state they live in. However, generally speaking, if you have a source of income much greater than your Social Security benefit, you may have to pay taxes on up to 85% of your Social Security income.
Examples of Taxable Income for Seniors
While there are countless forms of taxable income for the elderly, pensions, investment income, and part/full-time employment income are some of the most common forms.
Pensions, a common source of retirement income, are typically taxable. This includes private and government pensions, where taxes apply to the portion of the pension funded by pre-tax contributions. Similarly, withdrawals from traditional retirement accounts like IRAs or 401(k)s are also subject to income tax, as these accounts are typically funded with pre-tax dollars. However, it's worth noting that Roth IRAs and 401(k)s offer tax-free withdrawals because they are funded with after-tax dollars.
Another significant taxable income source is investment income, which encompasses interest, dividends, and capital gains from various financial instruments such as stocks, bonds, and mutual funds. While qualified dividends and long-term capital gains benefit from lower tax rates, non-qualified dividends and short-term capital gains are taxed at the standard income tax rates.
Part-Time and Full-Time Employment
Additionally, income from part-time or full-time employment is fully taxable. This is an important consideration for seniors who remain in the workforce or take part-time jobs post-retirement. Understanding these different sources of taxable income is crucial for seniors to manage their tax obligations effectively and plan their finances during their retirement years. It is always beneficial to seek guidance from a tax professional to navigate the complexities of retirement income and taxation.
Keeping Up with Tax Law Changes
It’s important to remember that the tax code is, unfortunately, ever-changing. Every year, countless changes are made to the tax code that can save or cost you money.
This means you should keep up-to-date with the latest changes affecting you. Don’t worry; you won’t have to read through all the changes yearly. You can often search the internet for pertinent changes or contact your CPA if you use one.
Wrapping it Up
Figuring out whether or not you are required to file taxes as a senior citizen can be incredibly difficult. Since there are many ways to earn income as a senior, figuring out which are taxable can be tough. However, with a bit of research and potentially some help from a trusted CPA, you can determine whether or not you need to file a tax return (and file your return if you’re required to!)
Can Seniors Claim a Higher Standard Deduction?
Yes! For tax year 2023, Those 65 or older get an additional $1,500/person added to their standard deduction if they are married filing jointly/separately, or $1,850/person if filing as single or head of household.
How Does Selling a Home Affect Taxes for Seniors?
Capital gains from selling a primary residence are tax-free if you profited $250,000 or less as a single filer, or less than $500,000 if you’re married filing jointly.
What Can Seniors Do If They Can’t Afford to Pay Their Taxes?
If you cannot pay your taxes, you should consider speaking to a licensed CPA, or contacting the IRS directly. Countless people face this problem each year, and the IRS helps alleviate the financial burden by working out payment plans.