Are you 50 or older? Finally, some good news, you may qualify for some tax breaks. Being older has some perks, and the following tax breaks may be available to you.
Seniors 65 and older get a bigger standard deduction.
You or your spouse can claim a larger standard deduction if you don’t itemize your tax deductions. The standard deduction for seniors is $1,700 more than for people younger than 65 filing as individuals. For married couples, the standard deduction can be increased by $1,350 if one member is 65 or older and by $2,700 if both are. If either of you is blind, you may be eligible for a higher standard deduction.
Tax filing thresholds are higher
Older workers can earn a little more income before filing a tax return. For 2021, older workers (65 and up) can earn up to $14,250 before filing a tax return, about $1,700 more than younger workers. Tax-filing thresholds are $27,800 for couples age 65 and older, or $26,450 if only one spouse is 65 or older, compared to $25,100 for younger couples. For people below the filing threshold, however, filing a tax return may be necessary to qualify for tax credits or a refund of income tax withheld.
Property tax breaks
States and localities have varying property tax rules. Some places, however, provide property tax exemptions or deferrals to older people who earn less than a certain amount. For example, in Texas, homeowners 65 and older are eligible for a $10,000 homestead exemption, a $25,000 exemption for all homeowners, and additional exemptions from local jurisdictions. Look into the specific rules in your area to see if you qualify for a property tax break. An application or different tax forms may be required before you can claim an exemption from property tax.
Credit for the elderly or disabled
Those 65 and older with low incomes may qualify for a tax credit for seniors. By taking the credit, retirees may be able to reduce their tax bills. To qualify for the credit, you must earn less than $17,500 a year (or $25,000 if both spouses are 65 or older) and have less than $5,000 in non-taxable Social Security and pension income ($7,500 for couples). The adjusted gross income cutoff is $20,000 if only one spouse qualifies for the credit. This credit may also be available to younger people who are permanently disabled.
Additional IRA deduction
Individual retirement accounts allow older workers to defer paying income tax on more money than younger workers. As of 2022, workers over 50 can save an additional $1,000 for a total of $7,000 in an IRA. With an IRA maxed out, a 50-year-old worker in the 24% tax bracket would save $1,680 on his current tax bill, more than $240 more than the maximum tax break for a young retiree in the same bracket of $1,440. Seniors with low- and moderate incomes who contribute to retirement accounts may also qualify for the saver’s credit.
401(k) catch-up contributions
Catch-up contributions may be available to older workers with 401(k) plans. In 2022, employees age 50 and older can defer paying income taxes on $6,500 more than younger workers if they contribute to a 401(k) plan. This money won’t be subject to income tax until it is withdrawn.
Early withdrawal penalties are no longer applicable.
Early withdrawals from retirement accounts by younger workers are subject to a 10% penalty unless used for specific purposes. The 10% tax does not apply to withdrawals from an IRA after you turn 59 1/2. You can begin penalty-free distributions from your 401(k) account at age 55 or later if you leave your job. When withdrawing from traditional retirement accounts, income tax will be due.
Qualified charitable distributions
Traditional retirement accounts typically require retirees to withdraw money and pay income taxes. A qualified charitable distribution allows you to avoid income tax on withdrawals from IRAs if you do not need the money. Transferring an amount up to $100,000 directly from an IRA to a qualified charity will not trigger income taxes for retirees ages 70 1/2 and older.
The contribution limit for HSAs increased
Contributions to a health savings account can be deducted from income for workers with high-deductible health plans. When used for qualifying medical expenses, distributions from these accounts are tax-free. In 2022, people 55 and older can contribute up to $4,650 to a health savings account, $1,000 more than those under 55. As soon as you become a Medicare beneficiary, you can no longer contribute to an HSA.
Help with your taxes for free
It is possible to get help filing taxes for older people without paying excessive hourly rates. Age 60 and older can receive free tax assistance through the Tax Counseling for the Elderly program. Between January 1 and April 15, IRS-certified volunteers prepare and file tax returns electronically for older taxpayers. In addition to tax questions about pensions and retirement benefits, the TCE program focuses on tax issues seniors typically face.