Dealing with your own taxes can be incredibly daunting, so many caregivers don’t know where to start when it comes to dealing with their loved one’s financial responsibilities or whether their loved ones still have to file a return. of income.
However, a working knowledge of tax requirements for seniors can help ensure your loved ones get the credits and benefits they deserve.
Minimum requirements for tax declaration
“Individuals are considered lifetime taxpayers,” said Jo Willetts, director of tax resources for Jackson Hewitt Tax Services.
However, she notes that only people who meet the minimum reporting 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 people
- $26,450 for married people filing jointly with a partner over 65
- $27,800 for married people filing jointly and both age 65 and older
- $20,500 for the head of household
- $26,450 for an eligible widow or widower.
If Social Security is your loved one’s only source of income, there are usually no taxes on it. However, Willetts explains that taxpayers with self-employment income such as contracting, freelancing, consulting, or a side gig must file a return if they earned more than $400 in 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 eligible widows) have less than $25,000 in total with all taxable income plus half of their welfare benefits. social Security. The threshold for married couples filing jointly is $32,000. Married couples filing separately have two different thresholds: if they lived with a spouse during the year, 85% of their benefits are taxable; if they were not living 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 minimum withdrawals,” she explained. “If a taxpayer falls into this category, they must either file a Form 5329 tax return alone and pay the taxes, or provide a reason why they are not subject to the penalty. Roth accounts do not require withdrawals at any time.
However, Willetts offers the following advice to circumvent this requirement:
“When you’re 70.5 or older, you can make a direct charitable contribution of your required annual distribution from your IRA,” she said. “You have to work with your plan administrator (the bank or other financial institution that holds your account), but this meets 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:
- Non-refundable credits (meaning taxpayers can only use the amount of credit needed to reduce income tax to zero):
- The Seniors and Disability Credit is a non-refundable credit for elderly and/or disabled taxpayers with very low incomes. The maximum income for this credit has not changed for over 30 years, which makes this credit ineffective.
- Credit for other dependents – This $500 credit covers dependents who are not eligible for the child tax credit.
- The Saver’s Credit (Credit for Qualified Retirement Savings Contributions) is a credit of up to $1,000 to contribute to a retirement plan or IRA. The credit is reduced by account distributions 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)
- Childless Earned Income Tax Credit – For 2021 only, the age limit of 65 is suspended and the credit is worth up to $1,502.
- Income earned with children tax credit – There is no upper age limit for this credit and this credit is available to older parents or family members with child care . The maximum credit for 2021 is $6,728 for three or more children, $5,980 for two children and $3,618 for one child.
- The tax credit for children with children under 18 – The maximum credit for 2021 is $3,000 or $3,600 for children under 6.
- Child and Dependent Credit – A credit for 50% of the cost of child care if the taxpayer is still working and a spouse or older dependent needs care. This credit amounts to 35% (20% of authorized expenses and will not be refundable) from 2022.
Where to find tax help
Confused yet? Don’t worry, there are plenty of places to help.
Willetts recommends hiring a tax professional or a Tax Council for Seniors (TCE) volunteer for a local seniors program and filing electronically to keep taxpayer information secure.
“If there’s 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 printed version of the traditional Form 1040.
The IRS offers free tax preparation for eligible taxpayers, and the TCE program offers free tax assistance, particularly for those 60 and older, and specializes in questions about pensions and income-related issues. pensions specific to the elderly. As a caregiver, you can positively impact the lives of your loved ones by ensuring they receive the tax benefits they deserve.