If you’re an older adult or a newly retired person, keep reading to learn about the tax breaks you can take advantage of this tax season.
A Larger Standard Deduction for Older Adults
You won’t have to pay taxes on as much of your income, because the IRS allows you to begin taking an additional standard deduction when you turn 65. For tax year 2022—the tax return you file in 2023—you can add an extra $1,750 to the standard deduction you’re otherwise eligible for, as long you are unmarried and not a surviving spouse. You can add $1,400 if you’re married and file a joint return. In tax year 2023, you can add an extra $1,850 and $1,500, respectively, to your standard deduction.
Should You Take the Standard Deduction or Itemize Your Deductions?
You have a choice between claiming the standard deduction or itemizing your deductions, but you can’t do both. And the Tax Cuts and Jobs Act (TCJA) pretty much doubled the basic standard deductions for all filing statuses—the deduction you can claim before you claim the extra bonus deduction for being age 65 or older, making it a somewhat difficult decision. For tax year 2022, the base standard deductions before the bonus add-on for older adults are:
$25,900 for married taxpayers who file jointly, and qualifying widow(er)s$19,400 for heads of household$12,950 for single taxpayers and married taxpayers who file separately
Many older taxpayers may find that their standard deduction plus the extra standard deduction for age works out to be more than any itemized deductions they can claim, particularly if their mortgages have been paid off and they don’t have that itemized interest deduction any longer. But you could gain a larger deduction for itemizing if you still have a mortgage and factor in things such as property taxes, medical bills, charitable donations, and any other deductible expenses you might have.
A Higher Tax Filing Threshold
Your threshold for having to file a tax return in the first place is also higher if you’re age 65 or older, because the filing threshold generally equals the standard deduction you’re entitled to claim. Most single taxpayers must file tax returns when their earnings reach $12,950 (the amount of the standard deduction), but your deduction can go up to $14,700 if you’re age 65 or older (the standard deduction plus the additional $1,750). You can jointly earn up to $27,300 if you or your spouse is 65 or older and you file a joint return. If you’re both 65 or older, your deduction could be $27,800.
Taxable Social Security Income
Your Social Security benefits might or might not be taxable income. It depends on your overall earnings. Add up your income from all sources, including taxable retirement funds other than Social Security and what would normally be tax-exempt interest. Then add half of what you collected in Social Security benefits during the course of the tax year. The Social Security Administration (SSA) should send you Form SSA-1099 around the first day of the new year, showing you exactly how much you received. You don’t have to include any of your Social Security as taxable income if the total of all your other income and half your Social Security is less than $25,000 and you’re single, a head of household, or a qualifying widow or widower. That increases to $32,000 if you’re married and filing a joint return, and it drops to $0 if you file a separate return after living with your spouse at any point during the tax year. If you earn more than $32,000 as an individual or $44,000 as a married joint filer, up to 85% of what you collect in Social Security might be taxable.
Tax Credits for Older Adults
One of the most significant tax breaks available to older adults is the tax credit for the elderly and disabled. This tax credit can wipe out some, if not all, of your tax liability if you end up owing the IRS. You must be age 65 or older as of the last day of the tax year to qualify. That Jan. 1 rule applies here, too; you’re considered to be age 65 at the end of the tax year if you were born on the first day of the ensuing year. You must be a U.S. citizen or a resident alien, but if you’re a non-resident alien, you might qualify if you’re married to a U.S. citizen or a resident alien. In general, you must file a joint married return with your spouse to claim the credit if you’re married unless you didn’t live with your spouse at all during the tax year. And you won’t be eligible for this credit if you earn more than the following:
$17,500 or more and your filing status is single, head of household, or a qualifying widow or widower$20,000 or more and you’re married, but only one of you otherwise qualifies for the credit$25,000 or more, and you file a joint married return$12,500 or more, and you file a separate married return, but you lived apart from your spouse all year
Limits also apply to the nontaxable portions of your Social Security benefits, as well as to nontaxable portions of any pensions, annuities, or disability income you might have. Those limits are as follows:
$5,000 or more, and your filing status is single, head of household, or qualifying widow or widower$5,000 or more, and you’re married, but only one of you otherwise qualifies for the credit$7,500 or more, and you file a joint married return$3,750 or more, and you file a separate married return, but you lived apart from your spouse all year