What You Need to Know About Tax Breaks if You’re Over 50
It’s that dreaded time of year again as April 18th looms around the corner. Have you done your taxes yet?
If not, you might like to know about some tax breaks for those over 50 – and even more benefits for those 65 and older.
Hey, there has to be some perks to getting older, right?
Here’s what you need to know, but before we get started, please note, I am not a tax or financial expert. The information here should not be regarded or substituted for professional advice.
Simplified Tax Forms & Free Tax Help
You can use the new simplified Form 1040-SR for seniors if you are 65 or older and don’t have complicated taxes.
Although these forms are virtually the same as Form 1040, the Form 1040-SR features larger type and larger boxes to write down numbers, making it easier for boomers who still fill out their tax return by hand (instead of online) to read and fill out.
Also, did you know that The Tax Counseling for the Elderly (TCE) program provides free tax assistance to those age 60 or older? IRS-certified volunteers assist older taxpayers with basic tax return preparation and electronic filing between Jan. 1 and April 15 every year.
Higher Contributions for Retirement Accounts
Contributing to a tax-deferred retirement plan, such as an IRA or a 401(k), not only makes your retirement more comfortable and enjoyable. Doing so also decreases your income which means it reduces your income taxes as well.
You have until the filing deadline of the following year to contribute to an IRA. So you can contribute to your IRA for 2021 until April 18, 2022.
The good news: Generous catch-up provisions are provided for those 50 and older.
For example, in 2022, the contribution limit for workers who participated in 401(k), 403(b), most 457 retirement saving plans and the federal government’s Thrift Savings Plan was increased to $20,500. That’s up from $19,500 in 2021. But it gets even better for employees 50 and older who can add an additional $6,500, for a total of $27,000.
The contribution for a traditional or Roth IRA is the same as last year – $6,000 for younger workers and a catch-up of $1000 for seniors for a total of $7000.
Anyone who has a Savings Incentive Match Plan (SIMPLE) IRA, can make salary deferrals (salary reduction contributions) up to $13,500 for 2021 ($14,000 for 2022). But if you’re age 50 or older, you can add an extra $3,000.
Yet, many boomers are missing this opportunity to put more money in their retirement accounts using these catch-up provisions. Only 15 percent of those who are eligible are making them, according to the Vanguard Group’s “How America Saves 2021” report.
Sacrifices to take advantage of these catch-up provisions will no doubt pay off in retirement. As guest blogger Danielle K. Roberts, co-founder of Boomer Benefits and a member of the Forbes Finance Council wrote in my blog, How to Avoid Top Four Retirement Mistakes: “Whether you need to cut down on your grocery expenditures, downsize your home, or find a way to boost your income – getting more money into one of these accounts will make life easier for you in retirement.”
By the way, low- and moderate-income seniors who contribute to a retirement account may also qualify for the saver’s credit.
Higher Standard Deduction at Age 65
Taxpayers who don’t itemize tax deductions get a standard deduction that reduces their taxable income and lowers their tax bill. Most married couples will get a standard deduction of $25,100. For single taxpayers and married individuals filing separately, the standard deduction is $12,550.
But if you are 65 or older – those standard deductions increase substantially.
Seniors who file as a single taxpayer get an extra $1,700 for the tax year 2021 and $1750 for tax year 2022. If you’re married and file jointly and one of you is 65 or older, the extra deduction is $1,350; if both of you are over 65 you can add $2,700. Not bad.
Bigger HSA Contribution Limit
Taxpayers with high-deductible health plans can claim a tax deduction on contributions to a health savings account (HSA). Distributions from these accounts are tax-free when used to pay for qualifying medical expenses.
Individuals who are age 55 or older by the end of the tax year are eligible to contribute up to $4,650 to a health savings account in 2022, $1,000 more than younger workers.
Keep in mind, however, you can no longer contribute to an HSA once you enroll in Medicare.
Tax Credit for Elderly with a Low Income
If you or your spouse are age 65 or older and you have a low income, you could be eligible to claim a tax credit for seniors.
You must have an adjusted gross income below $17,500 ($25,000 if both spouses are 65 and older) and nontaxable Social Security and pension income below $5,000 ($7,500 for couples) to claim the credit.
If only one spouse qualifies for the credit, the adjusted gross income cutoff is $20,000.
Property or School Tax Deferrals or Exemptions
Property tax rules vary widely by state and local jurisdiction, so you’ll need to check the rules for your specific area.
But in some places, people who are above a certain age and earn below a specific income level may qualify for property or school tax deferrals or exemptions. Unfortunately, the state, county or city agency that collects your property taxes may not tell you that you qualify. As a result, you may have to figure out whether you’re eligible and then take the necessary steps to receive the tax deduction.
Most states have an official government website dedicated to taxes, revenue, or finance that lists the local rules and provide necessary forms for senior property tax exemptions.