When it comes to federal taxes, many older adults are eligible for tax relief that can reduce their tax burden. The Internal Revenue Service defines an older adult as someone who is age 65 or older.
Four tax benefits available to these older taxpayers are related to:
- Higher filing threshold for gross income
- Higher standard deduction
- Credit for elderly or disabled, if eligible
- Lower Threshold for Medical/Dental Expenses.
Higher Filing Threshold
As with all taxpayers, older adult income level requirements for filing federal returns vary depending on marital status.
For instance, a single person age 65 or older must file a federal tax return if gross income is $11,700 or more (compared to $10,150 for those under 65).
A married couple, both 65 or older and filing jointly, must file a return if their gross income is $22,700 or more. It drops to $21,500 if only one spouse is 65 or older.
If you do not itemize your deductions, you can get a higher standard deduction amount if you or your spouse is 65 years old or older. You can get an even higher standard deduction amount if either of you is blind.
Depending on your marital and filing status, standard deductions for older adults range from $7,400 to $17,200.
Available Credit for Elderly or Disabled Persons
To determine if you can claim this special credit, you must consider two income limits. The first limit is the amount of your adjusted gross income. The second limit is the amount of nontaxable social security and other nontaxable pensions, annuities, or disability income you received. The limits are shown here.
If your adjusted gross income and your nontaxable pensions, annuities, or disability income are less than the income limits, you may be able to claim the credit. You can figure the tax credit yourself or the IRS will figure it for you.
This credit is also available to people under 65 who are permanently and totally disabled. To be considered disabled, you can't engage in any substantial gainful activity because of your physical or mental condition, and a physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death.
Medical and Dental Expenses
Money spent on medical care is one of the largest expenses for older adults. The IRS defines medical care as:
- The diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body;
- Transportation primarily for and essential to medical care;
- Qualified long-term care services;
- Insurance, including amounts for supplementary medical insurance and qualified long-term care insurance.
For older adults, the current threshold for deducting medical and dental expenses is 7.5% of adjusted gross income (through December 2016). The threshold is 10% for taxpayers under the age of 65.
Prepaid medical costs can also be deducted. For continuing care retirement community residents, this means a portion of the lump sum entry fee and a portion of the monthly fee may be deductible as medical expenses.
“At Kendal at Oberlin, there’s a significant potential tax deduction one can get because of the monthly fee related to medical expenses,” says AARP Tax Aide Joe Palmieri. “The same thing is true for the entrance fee.”
The amount of the per capita medical deduction is calculated annually, based on the community’s cost for providing care services.