Tax Relief for Senior Citizens: Tax Credits & Deductions for Older Taxpayers

Tax Relief for Senior Citizens

As a senior citizen, you’ve probably worked for several decades and paid thousands over the years in taxes. Perhaps you have even reached certain milestones in your golden years, like paying off your children’s student loans or paying off your home loan. Whatever your financial circumstances, it’s essential to know that your tax obligations will change as you grow older. In most cases, being 65 or older enables you to take advantage of more tax breaks while also receiving benefits like Social Security. Keep reading for a full explanation of tax relief for seniors, or skip to the section that answers your query using the links below.

Filing Taxes as a Senior Citizen 

If you’re 65 or older, the amount you can earn before you pay taxes increases. Single taxpayers under 65 years old need to file tax returns when their earnings reach $12,000. But if you’re 65 or older, you can earn up to $13,600 before you need to file. And, if your only earnings are your Social Security benefits, you might not have to file taxes—more on that later.

If you’re married and file jointly, and both you and your partner are under the age of 65, you can earn $24,000 together before needing to worry about filing a tax return. If one of you is 65 or older, you can earn even more: $25,300. If you’re both 65 and older, you can earn up to $26,600 before you need to file income taxes.

Tax Credits and Deductions

When you’re a senior citizen, Uncle Sam begins easing tax thresholds, and there are significantly more tax relief programs available to seniors. Below are some of the common tax credits, exemptions, and deductions you may be able to enjoy during your retirement years. It’s important to note that although there is country-wide federal tax relief for seniors available, certain states also offer their respective tax programs for older citizens.

Senior Tax Credit

The tax credit for seniors and the disabled may help you if you find that you owe taxes to the IRS at the end of the tax year. To qualify for this tax credit, you’ll need to be 65 or older as of the last day of the tax year. In addition, you must be a U.S. citizen or a resident alien. If you’re a non-resident alien, you can still qualify if you’re married to a U.S. citizen or a resident alien.

If you’re married and want to apply for the senior tax credit, you’ll be required to file jointly with your spouse–unless you did not reside with them during the tax year. If you’re considered the head of household, this filing status allows you to obtain the credit if your spouse did not reside with you after June 30. With that said, many other rules apply to claiming this particular tax credit.

Note: You’ll need to file using Form 1040 or Form 1040A to receive the Credit for the Elderly or Disabled. To calculate your tax credit, you’ll need to fill out Form 1040, Schedule R. You can’t qualify for this credit if you file using Form 1040 EZ.

Another factor that determines your eligibility to claim this credit is your income. If you earn over the income limit for your filing status, you won’t claim the senior tax credit.

Here are the income caps for qualifying for the senior tax credit.

  • $17,500 or more if your filing status is single, head of household, or qualifying widow(er)
  • $20,000 or more if you’re married, but only one of you qualifies for the credit
  • $25,000 or more if you file jointly as a married couple
  • $12,500 or more if you file a separate married return but lived apart from your spouse the entire tax year

The numbers above are not based on your total income but your adjusted gross income or AGI. Your AGI is the number you get after certain deductions are taken out from your taxable income on the first page of your tax return.

Besides income caps, limits to qualifying for the senior tax credit also apply to nontaxable portions of your Social Security earnings, plus any nontaxable amounts of pensions, annuities, or disability income earnings.

Here are the limits concerning those types of nontaxable funds:

  • $5,000 or more if your filing single, head of household, or qualifying widow(er)
  • $5,000 or more if you’re married, but only one qualifies for the credit
  • $7,500 or more if you file a joint married return
  • $3,750 or more if you file a separated married return, but you lived apart from your partner for the course of the entire tax year

You won’t qualify for the senior tax credit unless your income is under both limits. If your income is over in either category, you’ll be excluded. 

The senior tax credit is nonrefundable, so it can be used to erase whatever you owe the IRS. Still, you won’t be refunded for any unused balance after your tax obligation is zeroed out.

Changes in Standard Deduction

When you turn 65, you will receive an additional standard deduction as part of the available IRS tax relief for seniors. For example, in the 2020 tax year, if you’re single or file as head of household, you can get an extra $1,650 on top of the standard deduction you’re already eligible for.

If you are married and file jointly, you can add $1,300 for each spouse who is 65 and older. If just one of you is 65, you can claim one of the additional deductions.

It’s important to note that the standard deduction is claimed instead of itemizing your deductions; you cannot do both. In most cases, it makes sense to leverage the standard deduction because itemizing requires tons of qualifying expenses to extract the most value from it. The Tax Cuts and Jobs Act (TCJA) doubled standard deductions (or close to it) for all tax filers. These deductions have been in place since 2018 and will continue through 2025.

Many senior taxpayers will find that the extra standard deduction plus their regular deduction provides a much bigger payoff than itemizing their deductions. This is especially true for taxpayers who have paid off their mortgages since there would be no itemized interest deduction to write off anymore.

With that said, if you still have a mortgage that you’re paying, it may make sense to itemize your expenses. Consider property taxes, donations, medical costs, and other qualifying expenses if you choose to itemize. These deductions are subject to limits, so it’s important to compare your itemized deductions to your standard deductions to see which gives you the better tax break. For the majority of senior citizens, taking advantage of those standard deductions is a more lucrative, smarter, and less labor-intensive option.

Taxes and Social Security

If you receive Social Security benefits, they may or may not be considered taxable income. Whether or not you pay taxes on your Social Security funds depends on a variety of other factors that we’ll dive into below.

To find out if you’ll be required to pay taxes on your Social Security income, add up your total income. This number should include taxable retirement earnings besides Social Security and tax-exempt interest. Then, add that number to half of what you received in Social Security funds during the tax year. The final result is what’s known as your combined income.

Combined Income = Adjusted Gross Income + Nontaxable Interest + Half of Your Social Security Benefits

Note: The Social Security Administration mails out a Form SSA-1099 close to the beginning of the new year that details how much money you were given for the previous tax year.

The combined income limit is $25,000 if you’re single, head of household, or a qualifying widow or widower. If you’re under that amount, your Social Security Benefits don’t need to be included in your taxable income. If you are married and filing taxes jointly, the income limit increases to $32,000.

Combined Income Formula

You may want to consider filing a joint return if you’re married, otherwise, you’ll be required to pay taxes for a portion of your benefits if you are married filing separately – with the exception being that you did not live with your spouse during the tax year at any time.

For single filers in the 2020 tax year with a combined income of $25,000 to $34,000, you will pay income taxes on up to 50% of your Social Security funds. For an income over $34,000, you’ll be liable to pay income tax on up to 85% of your benefits.

For married couples filing jointly with a combined income between $32,000 to $44,000, you will pay income tax on up to 50% of your benefit. If your combined income is over $44,000, up to 85% of your benefits can be taxed.

The IRS offers a tool to help you determine whether or not your Social Security funds are taxable and how much. You can use Notice 703 to determine whether your Social Security benefits are taxable in a given tax year.

Property Tax

If you’re an older taxpayer and homeowner, you can take advantage of certain tax breaks offered to senior citizens structured to help lessen the burden of property taxes. These tax breaks are designed to protect older people whose homes’ values have increased so much over the years that their tax bills have become prohibitively expensive. For many seniors, rising taxes are particularly troubling because many live on smaller, fixed incomes.

Local Considerations

Property taxes are imposed at the local, not federal level. States each have their own property tax rules, so it’s important to be well-versed in the property taxes that apply to you. In addition to laws and regulations that apply state-wide, there are also tax differences on city and county levels as well.

Property Tax Calculations

If you own property, your local tax authority will appraise it and assign it a market value based on comps in the area. The area’s tax rate is then added to the number. The final result is what you’ll pay in property tax.

So, if your home is worth $200,000, for instance, and there’s a local 2.5% property tax rate, you’d owe $5,000 in property taxes.

With that said, there are tax exemptions for older taxpayers that reduce the portion of your home’s value that is subject to taxes. Certain states have more tax relief programs for seniors to help with rising property tax costs. Here are a few noteworthy state property tax exemptions:

  • Honolulu: Tax exemption of $140,000 for those 65 and older.
  • Alaska: Tax exemption of $150,000 for those 65 and older.
  • New York: 50% of your home’s appraised value as long as your income is below $29,000 and you’re 65 or older.

Although tax exemptions are worthwhile, there are also plenty of areas where property taxes are incredibly low across the board, not just for the senior citizen demographic. If you’re concerned about paying too much in property taxes, states like New Mexico, Indiana, Utah, and Idaho offer homeowners some of the lowest property tax rates in the country. This is one of the many reasons why retirees tend to move to states with lower property tax rates, so they can take advantage of homeowner benefits without worrying about higher taxes.

States with the Lowest Property Taxes

How Community Tax Can Help

At Community Tax, we understand that navigating taxes — and tax relief — as a senior citizen can be overwhelming, especially if you’re in a unique tax situation. Community Tax offers tax preparation services that can help senior taxpayers make the most of the tax breaks they qualify for.

Benefits of Using Professional Tax Services for Tax Relief

  • May save you money: Even the IRS notes that individuals who file their own taxes tend to make more mistakes. Sometimes, those mistakes can be costly, especially if you miss a big deduction or tax credit.
  • Access to professional guidance: If you’re looking for tax relief for seniors and you’re not sure whether to itemize your deductions or claim the standard deduction, a tax pro can step in and help guide you to the right decision. In turn, you can save money and may be able to garner a larger tax break.
  • Superior levels of tax knowledge: Even the most well-versed taxpayer may not be as knowledgeable about nuances within the tax code. With a professional who knows the ins and outs of taxes, you can better understand your taxes and get your questions answered by an expert.
  • Less risk of mistakes: Making a mistake on your taxes can be an incredibly expensive problem to fix. But Community Tax experts can provide taxpayers with comprehensive tax resolution services to get their IRS mishaps straightened out.
  • Tax relief for seniors: If you’re a senior citizen and you’re not sure how to proceed with your taxes, Community Tax can help. Access to professional tax assistance means you can better understand the tax liabilities that specifically apply to you.
  • Long-term and short-term tax planning advice: Not only can working with tax professionals to file your taxes help you in the short term, but they can also dispense advice for tax and money-saving measures you can make all year long.
  • Reduce your risk of an audit: Dealing with the IRS directly isn’t always easy or straightforward. But tax professionals are trained to handle the IRS and can help you if you’re audited.
  • May save you time: The average tax return takes around 20 hours to fully complete. With a professional working with you, you’ll finish your taxes in a much shorter amount of time.
  • Previous returns can be reviewed: If you’ve regularly done your taxes on your own but you’d like to double check your last return for missed deductions, tax professionals can help you recoup the money you’re owed.

Tax Credits and Deductions for Seniors

Whether you’re looking to save money, explore tax relief, or simply better understand your taxes, it can be overwhelming when you’re on your own. As a senior citizen, taxes can be more of an obstacle, especially if you’re living on a fixed income and relying on savings in addition to any Social Security benefits. While it’s important to gain an understanding of your tax liabilities, Community Tax can help you find hidden deductions and guide you so you can save as much money as possible. With tax assistance, you can make the most of your retirement funds, worry less, and spend your golden years enjoying a relaxing lifestyle rather than thinking about your taxes.