Taking care of your own taxes can be incredibly intimidating, so many caregivers don’t know where to start when it comes to taking care of their loved one’s financial responsibilities—or if their loved ones even need to file taxes anymore.
However, a working knowledge of tax requirements for seniors can help ensure your loved ones are getting the credits and benefits they deserve.
Minimum requirements for filing taxes
“Individuals are considered taxpayers their entire life,” said Jo Willetts, director of tax resources for Jackson Hewitt Tax Services.
However, she notes that only individuals meeting the minimum filing requirements are required to pay taxes:
“The minimum filing requirement is the standard deduction amount including the additional amount for age for each filing status,” she said.
In 2021, the amounts are:
- $14,250 for single individuals
- $26,450 for married individuals filing jointly with one partner over the age of 65
- $27,800 for married individuals filing jointly who are both 65 and older
- $20,500 for head of household
- $26,450 for qualifying widow(er).
If Social Security is your loved one’s sole source of income, there are generally no taxes on it. However, Willetts explains that taxpayers with self-employment income such as contracting, freelance, consulting or a side gig must file a return if they made more than $400 gross income from their business.
“Up to 85% of Social Security benefits can be taxed,” she said. “However, Social Security benefits are not taxable if single taxpayers (including head of household, single and qualifying widow(er)) filing status have less than $25,000 total with all taxable income plus half of their Social Security benefits. The threshold for married couples filing jointly is $32,000. Married couples filing separately have two different thresholds: If they lived with a spouse at all during the year, 85% of their benefits are taxable; if they didn’t live with the spouse, their threshold is $25,000.”
Willetts also notes that taxpayers are required to withdraw a minimum amount from their retirement plans and IRA accounts once they reach age 72.
“There is a 50% excise tax for not making the minimum withdrawals,” she explained. “If a taxpayer falls into this category, they must file either a tax return of Form 5329 alone and pay the taxes or provide a reason why they aren’t subject to the penalty. Roth accounts do not require withdrawal at any time.”
However, Willetts offers the following tip to circumvent this requirement:
“When you are age 70 ½ or more, you can make a direct charitable contribution of your required annual distribution from your IRA,” she said. “You must work with your plan administrator (the bank or other financial institution that holds your account), but it satisfies your requirement to withdraw the money and allows you to help your favorite charity tax-free!”
Tax credits for seniors
Willetts encourages seniors and their caregivers to be aware of the following credits:
- Nonrefundable Credits (meaning taxpayers can only use the amount of credit needed to zero out income tax):
- The credit for the elderly and disabled is a nonrefundable credit for seniors and/or disabled taxpayers with a very low income. The maximum income for this credit hasn’t changed in more than 30 years, making this credit ineffective.
- Credit for Other Dependents – This $500 credit covers dependents not eligible for the Child Tax Credit.
- Saver’s Credit (Credit for Qualified Retirement Savings Contributions) is a credit of up to $1,000 for contributing to a retirement plan or IRA. The credit is reduced by distributions from the accounts and by income with no credit allowed after $66,000 (joint filers), $49,500 (head of household) or $33,000.
- Refundable Credits (meaning taxpayers can receive any excess credit as part of a refund)
- The earned income tax credit with no children – For 2021 only, the age limit of 65 is suspended and the credit is worth up to $1,502.
- The earned income tax credit with children – There is no maximum age limit on this credit and this credit is available to older parents or family members with custody of children. The max credit for 2021 is $6,728 for three or more children, $5,980 for two children and $3,618 for one child.
- The child tax credit with children under 18 – The max credit for 2021 is $3,000 or $3,600 for children under 6.
- The child and dependent care credit – A credit of 50% of the cost of daycare if the taxpayer is still working and a spouse or older dependent needs care is available. This credit reverts back to 35% (20% of allowed expenses and will be nonrefundable) beginning in 2022.
Where to find tax help
Confused yet? Don’t worry, many places offer assistance.
Willetts recommends using a tax professional or a Tax Counseling for the Elderly (TCE) volunteer for a local program for seniors and filing electronically to provide security for taxpayer information.
“If there is a refund, use direct deposit so no one is waiting for your refund check in your mailbox,” she said.
Willetts also notes that seniors can use IRS Form 1040-SR, which is a larger print version of the traditional Form 1040.
The IRS offers free tax return preparation for qualifying taxpayers, and the TCE program offers free tax help, particularly for those 60 and older, and specializes in questions about pensions and retirement-related issues unique to seniors. As a caregiver, you can make a positive impact in your loved ones’ lives by ensuring they receive the tax benefits they deserve.