Senior citizens in the country make up almost a huge percent of the population. A person is considered a senior citizen if he or she is already at the age of 65 years old and above. They are considered to be the fastest growing group in the country and is predicted to be 72 million in population by 2030 comparing it to the 40 million 65 plus Americans in 2010 which shows that the demographic is rapidly increasing.
When a person becomes a senior citizen, the way they pay their taxes change. They will now have special deductions and considerations in their taxes. However, once you reach the retirement age, certain credits and deductions will no longer apply.
For term definition, a ‘retiree’ is a person who already finished his or her career while a ‘senior’ is someone aged 65 years and above and is still filling and paying his or her taxes. For a review on the general guidelines, you can check on the general tax guide.
Tax Deduction For Seniors
The two ways to reduce the amount of money someone owes in taxes are: deductions and credits. Deductions reduce the amount that is taxable and are limited to the taxpayers liability while credits reduce the amount of tax in general that the person owes and is not limited by a liability therefore a tax refund may be earned.
Taxpayers have an option to file for a standard deduction or itemize their deductions. The amount of standard deductions depends on different factors such as the person’s income and the others stated below:
- MARITAL STATUS – a standard deduction is not granted to married couples who are filing separately with the spouse itemizing his or her deductions
- RESIDENT STATUS – a person is not allowed to file during the year if he or she is a non resident or an alien
- ACCOUNTING YEAR – a person cannot file if he or she have a short tax year or have a change in accounting year
People Aged Over 65, A Higher Standard Deduction Can Be Filed
The over 65 deduction can be filed as a part of Worksheet 4-1 with standard deduction. This cannot be used if the spouse is filing separately with itemized deductions. For more information, here is a guide on the IRS website.
Medical And Dental Deductions
Citizens under the age of 65 can deduct medical expenses when their medical expenses exceed 10% of their income while citizens over the age of 65 can deduct if their medical expenses exceed 7.5% of their income. Here is a full list of deductible medical and dental exams (PDF).
Tax Credits For Seniors
Credit For The Elderly Or Disabled
Eligibility: a person is eligible if and only if his or her income falls below the limit which is less than $17,500 and receives less than $5,000 in nontaxable Social Security benefits. Nontaxable pension payments or disability payments are also not included. Other information can be found in this PDF from the IRS.
Child And Dependent Care Credit
This is non refundable tax credits that encourage caretakers and parents to go to work and earn. This tax depends on how much the caretaker spends on a child and the amount I then reduced.
Eligibility: the caretaker should have a job with a dependent aged 12 years and below o a spouse who is not able to take care of themselves alone. The tax payer should be the breadwinner of the household paying at least half the cost of the maintenance of the place where the tax payer and the dependent lives. Other information can be found in this PDF from the IRS and a more in-depth look at this credit via IRS PDF.
Earned Income Tax Credit
This is refundable to persons earning below $51,567 (depending on the number of children and income). A person who does not have a child and is over 65 years of age does not qualify for this credit.
Eligibility for this credit depends on your and your spouse’s income and the number of children. Children should be less than 19 years old or less than 24 years old but still studying or disabled during the year regardless of age. For more information on eligibility; refer to IRS publication 596 (PDF) or the simplified explanation of the EITC on their website.
Health And Livelihood In Retirement
This provides funds and benefits to elderly and disabled persons. Each person has a Social Security and benefits will start to be received at the age of 62, although still reduced; full benefits will be given usually at 67 years old.
Eligibility: A U.S citizen with a Social Security Number and older than 65 years old or an adult U.S. citizen who is disabled. Other information can be found in the official Social Security website.
Pensions, Annuities And Investments
Pension and Annuities – a pension is from an investment fund established by a previous employer, it is a regular payment given during retirement. Other information can be seen at the IRS notes on pension and annuities.
Investments – investments are subjected to Net Investment Income Tax which is 3.8% above a threshold. You can visit the IRS Q&A page for the NIIT.
Health Savings Account
A federally funded healthcare program for senior citizens, people with disabilities or people with severe illness. It does not usually affect taxes but there is a new Additional Medicare Tax. For more information, please click here.
Charitable Donations And Service
Charitable Donations Tax Benefit
Donations made to qualified organizations are the only ones eligible. Qualified organization can be seen using this IRS tool. Other information can be seen in this guide from IRS and the list of eight common questions.
Volunteering Tax Benefits
For simple deductions from expenses, here are the four volunteer organizations you can participate in:
- Retired Senior Volunteer Program
- Foster Grandparents Program
- Senior Companion Program
- Service Corps of Retired Executives
Retirement Plans And Your Taxes
Each year after reaching the age of 50, you can make a contribution up to $5,500 while your employer can contribute up to $17,500. For more information, see the IRS guide.
Rollovers Of Retirement Plan Distributions
Rollovers happen when a person directs money from one retirement account to another. This is still subjected to tax. For various rollover possibilities refer to this chart and the IRS fact sheet for further information.