Tax Help for Senior Citizens

Retirees and senior citizens make up one of the fastest-growing groups of people in America today. By 2030, 72 million Americans will be older than 65. Compare that with the 40 million 65-plus Americans in 2010 and you can see how quickly this demographic is growing.

When you turn 65, the way you file taxes changes. You’ll be eligible for certain credits and deductions, and you’ll also be able to take a higher standard deduction. However, be aware that certain credits or deductions will no longer apply to you after you reach the official “retirement age.”

For tax purposes, a “retiree” is someone who has finished their career of full-time work. A “senior,” on the other hand, is someone who is 65 years of age or older in the year they are filing taxes. Seniors and retirees file taxes on April 15 like any other citizen, though in certain cases it may be worthwhile to file estimated quarterly taxes.

Remember that this is just an overview of filing your taxes, and not an official guide. For a review on the basics of filing your taxes, please refer to our general tax guide.

I. Tax Deductions for Seniors

There are two popular ways of reducing the amount of money you owe in taxes: deductions and credits. These two options are similar but different: deductions reduce the amount of money that is taxable, while credits reduce tax liability—the amount of tax a person owes in general. It’s a subtle but important difference.

Deductions are limited by the taxpayers liability, while credits may not be limited by that liability, and so may earn you a tax refund. In this section, we’ll look at standard and medical deductions.

Standard Deductions

When filing taxes, most citizens can make a choice between itemizing their deductions or filing for a standard deduction. The amount of the standard deduction depends on the citizen’s income and a number of other factors, and the eligibility for the deduction depends on:

  • Your Marital status
    • You cannot file a standard deduction if you are married and filing separately, and your spouse is itemizing their deductions.
  • Your resident status
    • You cannot file a standard deduction if you had a nonresident or alien status during the year.
  • Your accounting year

If you are over the age of 65, you can file for a higher standard deduction.

As with a standard deduction, you’ll file your over-65 deduction as part of Worksheet 4-1. Do not use this worksheet if you are married filing separately and your spouse itemizes their deductions.

To learn more about standard deductions for citizens over 65 or below it, see this guide on the IRS website.

Medical and Dental Deductions

There are a variety of medical expenses you can list as itemized deductions, including medications, diagnostic devices, hospital services, meals provided during hospital stay, and durable medical equipment like wheelchairs, crutches and false teeth.

U.S. citizens under 65 years of age can deduct medical expenses so long as those expenses exceed 10% of their gross income. Citizens over 65 years of age can deduct medical expenses if they exceed 7.5% of their gross income.

You can see the full list of deductible medical and dental exams here (PDF).

II. Tax Credits for Seniors

Remember, a “credit” reduces the amount of money you owe in taxes, while a deduction can reduce the amount of your taxable income. Below you’ll find a couple notable credits you should explore if you are 65 years of age or older and filing your taxes.

Credit for the Elderly or Disabled

This credit reduces the amount a person owes, provided they are over 65 years of age and/or on permanent disability. This credit ranges between $3,750 and $7,500, depending on whether you are filing individually or are married filing jointly.

Eligibility: You are only eligible for this credit if your income falls below a certain limit. Individuals who make more than $17,500, and/or who receive more than $5,000 in nontaxable Social Security benefits, nontaxable pension payments, or disability payments are not eligible for the credit. Likewise, married couples whose adjusted gross income exceeds $20,000 and/or receive more than $5,000 in nontaxable Social Security, pension, or disability payments are not eligible for the credit.

To learn more about this credit, especially about your eligibility for the credit, please see this PDF from the IRS.

To file the Credit for the Elderly or Disabled, you may figure the amount by filling out the front of Schedule R. You then enter that amount into your Form 1040 or 1040A. To learn more about how to file this credit, see the above PDF.

Child and Dependent Care Credit

The Child and Dependent Care Credit is a nonrefundable tax credit that encourages parents and caretakers of dependents to work. This credit takes a certain percentage of what a taxpayer spent on child or dependent care and reduces the amount the taxpayer owes by that amount.

Eligibility: To qualify for this tax credit, you must have paid for care for a qualifying dependent so that you could seek gainful employment. A qualifying dependent can be: a) a child 12 years of age or younger or b) a spouse or certain other individuals who are incapable of caring for themselves alone. The taxpayer claiming the credit must “maintain the household,” meaning the taxpayer must pay for at least half of the cost of maintaining the place where the taxpayer, their spouse (if applicable) and the dependent(s) live.

  • For example: If your grandchild, who is 11 years old, lives with you, and you pay a daycare center to care for him while you work your day job, you may qualify for this tax credit.

To learn more about the Child and Dependent Care Credit, see this info sheet from the IRS. You can also get a more in-depth look at this credit via this IRS PDF.

If you are eligible for this credit, you must complete Form 2441 and attach it to your Form 1040, 1040A, or Form 1040NR. To get a complete look at how to file for this credit, please see the above PDF.

Earned Income Tax Credit (EITC)

The EITC is a refundable tax credit available to working persons who have earned under $51,567, though this number is based on how many children you have. This credit has no effect on certain welfare benefits (like Medicaid or low-income housing). The amount you receive as a credit is based on a number of factors, including your income and how many qualifying children you have. If you do not have a child and are over 65 years of age, you do not qualify for this credit.

Eligibility: Eligibility for this credit is contingent on a number of factors, mainly how much you earn (and whether you are filing separately or jointly with a spouse) and how many qualifying children you have. Qualifying children must be under 19 years of age, or under 24 years of age and a student, or permanently disabled at any time during the tax year, irrespective of age. To learn more about eligibility for this tax credit, please refer to the IRS’ publication 596 (PDF), which gives a detailed breakdown of who is eligible and why.

The IRS has a simplified explanation of the EITC on their website:

If you are eligible for this tax credit, you can figure this credit yourself or have the IRS figure it for you. If you file using Form 1040, you should complete either EITC Worksheet A or B, depending on whether you are single or married, and if you work for the clergy. You must also complete Schedule EITC and attach it to your tax return. Schedule EITC provides the IRS with the necessary information about your qualifying children. You can learn more about the filing process in Publication 596 from the IRS (PDF).

III. Your Health and Livelihood in Retirement

Social Security

Social Security is a federal social welfare and social insurance program that provides funds (“benefits”) to elderly and disabled people. Each citizen has a Social Security number, and most salaries are taxed to provide money to the Social Security program. You can begin receiving Social Security benefits as early as age 62, though these benefits will be reduced. You will begin receiving full Social Security benefits when you hit the predetermined retiring age, which, for individuals born after 1960, is 67 years old.

To be eligible for Social Security, you must be a U.S. citizen with a Social Security number (or a qualified alien), and you must be older than 65 years of age. You may also receive Social Security benefits if you are a disabled adult. To look at an exhaustive list of what makes a person eligible for Social Security, see this official Social Security website.

Some people may be taxed on their Social Security benefits. Up to 85% of a person’s Social Security benefits may be taxed, though that’s only if your income, including one half of those Social Security benefits, exceeds a certain number ($34,000 for individuals, $44,000 for couples filing jointly).

Each year you’ll receive a form from the IRS (Form SSA-1099) that will show the benefits you received in the accounting year. Use this form to figure out how much of your benefits will be taxed. You can also have federal taxes withheld from your Social Security benefits. Take a closer look at what determines the tax rate on Social Security benefits on the IRS website.

If your benefits are taxable, you can pay estimated quarterly taxes, or you can have the taxable amount withheld monthly, as you would with a salary. There is no monetary benefit to withholding from your Social Security benefits, but if you do not pay enough in estimated quarterly taxes, you may incur a penalty.

Certain states exempt social security benefits from taxes. To find out if your state does not tax social security benefits, see this tool.

Pensions, Annuities and Investments

Pensions and Annuities

A pension is a regular payment, made in retirement, from an investment fund established by an individual’s former employer. These payments are often made as annuity payments—lump sums that are made once a year.

If you did not pay for any part of your pension (if it was provided by your former employer), you will be taxed on that income. If, however, you paid for part of your pension as you worked, you can exclude a portion of each annuity payment as a recovery of cost. To learn more about taxation of pension annuities, please see the IRS’ notes on pensions and annuities.

If part of your benefits are taxable, you must report them with Forms 1040, 1040A, or 1040EZ. Refer to this PDF from the IRS to get specific instructions on filing.

Investments

Some individuals may earn income via selling stock or bonds, selling investment real estate, or capital gains distribution from mutual funds. If you earn income in this way, regardless of age, your income is subject to the Net Investment Income Tax (NIIT). The rate of the NIIT is 3.8% above a certain threshold. To see these thresholds, please visit the IRS’s Q&A page for the NIIT.

Certain deductions and/or tax credits, such as the EITC, may be used to offset the NIIT amount. For a more in-depth look at taxes on your investments, refer to the IRS’ guide to investment taxes.

Depending on what state you live in, you may be able to avoid state taxes on income, whether it’s from investments, salary, or pensions. Washington state, for example, does not have a state income tax. New Hampshire offers a $1,200 for citizens over 65 years of age. You can look at the tax situation of each state using this map.

Taxable income from investment should be reported on Form 1040. The Net Investment Income Tax can be calculated using Form 8960 (PDF), which can be found on the IRS website.

Health Savings Accounts (HSAs)

An HSA is a tax-exempt or tax-advantaged trust set up to provide against health expenses you may incur. They are typically used in high-deductible health plans. Under this arrangement, you may claim deductions on money you put into your HSA, and contributions made to your HSA by your employer are tax-free. The interest on these funds is also tax free.

To be eligible for an HSA, you must a) be on a high deductible health plan; b) have no other health coverage, save a few specific exceptions; c) not be enrolled in Medicare; and d) not be able to be claimed as a dependent on someone else’s tax return.

To learn more about HSAs, please see this guide.

To learn how the IRS treats HSAs, see their guide.

Medicare

Medicare is a federally funded healthcare program for individuals who are 65 years or older, certain disabled persons, and people with end-stage renal disease. It is distinct from Medicaid, which provides health care coverage to low-income families and individuals.

Generally, Medicare does not affect an individual’s taxes, though there is a new, small Additional Medicare Tax, which is levied against individuals or married couples making more than a certain amount. You can find out more about the Additional Medicare Tax here.

IV. Charitable Donations and Service

Giving charitable donations and working volunteer hours at certain organizations may be deductible on your yearly taxes. There are certain restrictions and criteria that must be met, however.

Charitable Donations Tax Benefit

Only donations to qualified organizations may be deducted. Qualified organizations include 501(c)3 organizations, churches, war veterans associations, and other nonprofit bodies. You can search for qualified organizations using this IRS tool.

Your donations must go toward the organization itself, and not to a specific individual. You may not deduct donations to political candidates, for instance. To get the full scope of what can and cannot be deducted, see this guide from the IRS (PDF), or look at this list of eight common questions.

In order to file such a deduction, you will need to use Schedule A of Form 1040. Donations valued at over $5,000 require the use of Section B of Form 8283.

In order to deduct a charitable donation, you must keep a bank record, payroll deduction record, or written communication from the organization detailing your donation (e.g., an official receipt).

In order to file for this deduction, the IRS will need a record of your donation, the date, the amount, and the name of the receiving organization.

Volunteering Tax Benefits

Many seniors volunteer with various different organizations (like churches, foods bank, or museums), but most of this volunteer work is not tax deductible (you can often deduct for out-of-pocket expenses, such as gas money, for just about any qualified organization). Beyond simple deductions for expenses, you do not need to report any compensation from four volunteer organizations:

  • Retired Senior Volunteer Program (RSVP)
    • RSVP is a national organization that allows seniors to help their communities in a variety of ways, including teaching English, renovating homes, and organizing neighborhood watch programs.
    • The program is open to all American citizens age 55 or older
    • Tax Benefit: members do not receive compensation, but they will be reimbursed for any personal expenses.
    • RSVP Program Handbook
    • Contact Information
  • Foster Grandparents Program
    • This national program pairs retired senior citizens with children with exceptional needs. Foster grandparents teach reading, mentor troubled children, and care for premature infants or disabled children.
    • All U.S. nationals 55 years of age or older are eligible.
    • Tax Benefit: Volunteers who meet certain guidelines will receive a small, tax-free stipend, in addition to meals.
    • Foster Grandparents Handbook
    • Contact Information
  • Senior Companion Program
    • This program has seniors 55 years of age and up helping other older individuals live fulfilling, independent lives by providing a break for caregivers and family members.
    • Any American national older than 55 years of age is eligible.
    • Tax Benefit: Members receive supplemental insurance while on duty and have the chance of earning a tax-free hourly stipend.
    • Senior Companions Handbook
    • Contact Information
  • Service Corps of Retired Executives (SCORE)
    • SCORE pairs retired businesspersons with small business owners around the country. Retirees provide guidance, teach seminars, and guide the next generation of entrepreneurs.
    • Any person is eligible to work with SCORE, regardless of age or retiree status
    • Tax Benefit: Volunteers can deduct and expenses incurred from their yearly taxes.
    • Contact Information

V. Retirement Plans and Your Taxes

As you near the end of your working career and look forward to your retirement years, it’s important to have a retirement plan in place. Whether you are set to receive a pension, benefits from a Roth IRA, 401(k), or employee stock ownership, each retirement plan comes with its own tax implications. For the sake of simplicity, in this guide we’ll be focusing on withdrawing from (i.e. gaining income from) and contributing to your retirement account.

Contribution Limits

Once you hit 50 years of age, and your retirement is in sight, the rules for contribution limits change slightly. In addition to the regular contribution limits (say to your 401(k)), you are allowed a “catch-up” contribution.

Each year after you turn 50, you may make contributions to your 401(k) of up to $5,500, and your employer may make contributions of up to, but not exceeding, $17,500. For more on catch-up contributions, see the IRS’ guide.

Rollovers of Retirement Plan Distributions

A rollover is what happens when an individual directs money from one retirement account into a new account. The reasons to perform a rollover are numerous—you might already be retired, and so you’ll no longer be contributing to a 401(k). Or you might want more flexible investment options with your retirement plan.

Whatever your reasoning, you’ll have to remain diligent and stay on top of these rollovers. Once you withdraw funds from a qualified plan or IRA, you have 60 days to roll it over into another qualified plan. Failure to do so can incur tax penalties. Also bear in mind that most qualified IRAs have a limit of one rollover per year, so plan carefully.

Bear in mind also that retirement plan distribution is often subject to tax, regardless of whether you are going to roll it over or not. A standard distribution from a retirement plan, for instance, is subject to a mandatory 20% withholding.

Refer to this chart (PDF) and look up various rollover possibilities. You can refer to this IRS fact sheet for other questions.

Withdrawals

Three Popular Retirement Plans

An IRA is a blanket term applied to two different, though generally similar retirement plans. In a traditional IRA, all contributions are tax-deductible, and withdrawals are taxed as income.

A Roth IRA is an individual retirement arrangement that generally allows for tax-free withdrawals (distributions). Contributions to this IRA are made after taxes.

A 401(k) is a defined contribution pension into which an employer pays a regular amount of an employee’s paycheck before taxation.

Required Minimum Distributions

This is the minimum amount a retiree is required to withdraw from their retirement plan each year, starting with the year that person reaches 70 ½ years of age. Failure to take your RMD can result in 50% excise tax penalties on the amount that was required to be withdrawn. This affects all employer-sponsored retirement plans, including 401(k)s and traditional IRAs, as well as Roth IRAs. You must make your RMD by the end of the tax year each year. You can learn more about RMDs on the IRS website.

Early Distributions

Sometimes an individual may have to take funds from their retirement plan early. Distribution of this kind must be reported to the IRS, and are typically subject to an additional 10% tax, . Learn more about early distributions here.

VI. Surviving Your Spouse

In the unfortunate event of your spouse’s death, your filing status may change. If you were filing jointly, for instance, you will eventually have to begin filing as an individual again. However, in the year of your spouse’s death, you may still file for a joint return, and you will earn certain tax benefits (such as filing as a “qualified widower” if you have a dependent child) for up to two years after your spouse’s passing. This status allows you to file individually with joint return rates, and gives you the highest standard deduction. Once that two-year window is up, and you are no longer a qualified widower in the eyes of the IRS, you will have to file an individual return.

Your spouse’s final year of income may be reported on Form 1040. That tax return covers every day before their death. Certain other taxes, like the Alternative Minimum Tax (AMT) are included in this return as well. The AMT was designed to ensure that each citizen pays at least some tax. However, there are exemptions for heads of households, couples filing jointly, and qualified widowers making less than a certain amount.

To learn more about AMT and AMT exemptions, you can see this fact sheet on the IRS website. You will also have the ability to roll your spouse’s retirement plan funds (those in their IRA, for example), into your own without paying the estate tax.

VII. Additional Resources

If you’d like to learn more about taxes for retirees and senior citizens, consult these resources.

Retirement

Taxes

  • The USA.gov website gives a good introduction to retirees and taxes.
  • The IRS has a number of publications relevant to retirees and taxes. While dry, they’re often incredibly useful. They are:
  • This tool will help you look up the tax rate for retirees based on which state you live in.