A Simple Explanation of Income Tax Preparation for Seniors

In this article...
  • Income tax preparation for seniors doesn't have to be confusing. Discover our simple guide to making preparations for yourself or finding free tax assistance.
Two women chat while one uses her laptop computer

There's no denying that tax can be complicated, and it doesn't get any less so once you retire. The addition of different rules for social security benefits, investments, dependents, disability and annuities can be overwhelming. Luckily, there are organizations that can help with income tax preparation for seniors for free. And, if you don't have any income beyond retirement benefits, you may not need to file a return at all. Find out more information about income tax preparation for seniors below. 

Determine What's Eligible for Taxation

The first step of income tax preparation for seniors is to determine what income is eligible for taxation. Although it's more effort, older adults over age 60 may want to itemize their filing. If you don't, you risk getting higher standard deductions. There's a lot of fine print to go through, but all the details about taxable benefits, lump-sum benefits and deductions are on the IRS website. 

In some cases, even older adults whose benefits aren't taxable need to fill out a return. This is generally only the case if the amount is equivalent to your gross income plus one-half of your benefits.  The base amount varies depending on whether you're single, head of the household or married and filing separately, jointly or living apart.

Net Investment Income Tax

If you have income that you've earned through investments, this might also be subject to income tax. Examples include some annuities, royalties or rental income, capital gains, interest and dividends. You'll either need to pay 3.8% of the lesser amount of your net investment income or the amount your adjusted gross income exceeds the statutory threshold amount, which is determined based on filing status. The amounts are as follows:

  • Qualifying widows with a dependent: $250,000
  • Single persons or heads of households: $200,000
  • Married and filing separately: $125,000
  • Married filing jointly: $250,000

How the IRS Determines Your Standard Deduction

U.S. residents can use an online tool to get an estimate of how much their standard deduction is likely to be. You'll need to have your adjusted gross income and other tax-related information to hand. Additionally, you'll need the following information:

  • Marital status
  • Filing status
  • Tax return period
  • Date of birth

Check the information you've entered against your records and the tool will calculate your standard deduction. 

Don't Forget to Check if You're Entitled to Credit for the Elderly or the Disabled

A highlight of income tax preparation for seniors is that qualifying individuals can reduce the amount of tax they pay using credit for the elderly or the disabled. Eligibility depends on being over age 65, or alternatively retired on full disability benefit, under 65 and claiming taxable disability income. That's not all though; there are several exceptions and additions based on income limits and status.

What's the Difference Between Form 1040 and Form 1040 SR?

Since 2018's Bipartisan Budget Act, older adults have the option of using Form 1040 SR instead of Form 1040. The document features larger font and a chart with standard deduction information to make it easier to read and use.

Can Older Adults Get Free Help With Taxes?

You can find support programs for older adults to get help with tax matters in each of the 50 states. The IRS can help to connect seniors with the nearest support center for free income tax preparation for seniors.  

Tax Counseling for the Elderly

TCE is a free service specifically for seniors who require assistance with their tax returns. This is the best option for older adults over the age of 60, particularly if you're on a fixed income. Volunteers usually travel somewhere convenient to meet with you and help you work through your income tax.

Volunteer Income Tax Assistance 

VITA volunteers are IRS-certified tax specialists who help older adults, disabled people, individuals who have limited English language skills and those below a certain income level. If you're still working but don't speak fluent English or your income is less than the specified amount, VITA might be able to help. That said, there are limitations to what this service can do for you and people with more complex tax requirements may need to hire a tax professional.  

AARP, COVID-19 and Income Tax Preparation for Seniors

The American Association of Retired People (AARP) was previously an option for older adults to get help with taxes. However, in light of the COVID-19 pandemic, they've temporarily terminated services. Seniors may also be eligible for tax relief as a result of the economic disruption caused by COVID-19. 

Watch Out for Scammers

Finally — always be vigilant about scammers, who may take any opportunity to seize personal information. The IRS will never contact you requesting your personal information, so hang up or ignore any phone calls, texts or emails claiming to be a trusted authority.