NTA Blog: You’re Never Too Old to File – Taxes and Seniors
Taxpayers who stop working full time may think they can also reduce their tax filing requirements. However, taxpayers are never too old to have a filing requirement. While age is a consideration, filing requirements are determined by a variety of factors such as filing status, type and amount of income earned, and yes, even age. For 2021, single taxpayers are required to file a tax return if their gross revenue is $12,550 or more; however, single taxpayers age 65 or older are not required to file a return unless their gross income is $14,250 or more.
Railway social security and retirement benefits
Many elderly taxpayers receive Social Security or railroad retirement benefits, both of which are based on past earnings. The taxation of these benefits is not determined by age, but rather by filing status and the type and amount of other income received. TAS research shows that 98.4% of 2020 tax returns filed by taxpayers 65 or older reported other income in addition to Social Security and railroad retirement benefits.
Even though Social Security and Railroad Retirement benefits are based on a taxpayer’s earned income, these benefits are not considered income for refundable credits such as the Earned Income Tax Credit ( EITC). For the 2020 tax year, about 4% of returns filed by taxpayers aged 65 and over reflected at least one exemption for a child – with nearly 97% of those taxpayers receiving a child tax credit. And for the 2020 tax year, 45% of returns filed by taxpayers 65 or older reported pension or annuity income, but reflected no wage income. For many older taxpayers now raising grandchildren, the ability to claim EITC based on Social Security or railroad retirement benefits, or other history-based retirement income of a taxpayer’s income, would contribute to the credit’s objective of helping low-income families. This is especially true in multigenerational households, where raising children across two or more generations may have been unplanned. In this vein, I have proposed legislative changes to restructure and modernize the EITC. Since the EITC is a credit for low-income families, its eligibility should more accurately reflect its target population.
Other credits may be available
Taxpayers age 65 or older and taxpayers under age 65 who receive taxable disability income due to retirement due to permanent and total disability may qualify for the seniors’ or disabled’s credit. To be eligible for this credit, eligible individuals must also meet two income limits: both their adjusted gross income and the total of their non-taxable Social Security and other non-taxable pensions, annuities, or disability income must be less than the designated amounts corresponding to the taxpayer’s income. filing status. If eligible, taxpayers must complete Schedule R, Elderly or Disabled Person Credit, and attach it to their tax return when filing. Taxpayers who need help determining if they qualify for this credit can use the IRS’ interactive tool, Do I Qualify for the Elderly or Disabled?
Taxpayers who pay a caregiver to care for a spouse (or other qualifying relative) who was physically or mentally unable to care for themselves so that they could work or seek work should also consider their eligibility for the Child and Dependent Care Tax Credit. In 2021, the American Rescue Plan Act of 2021 (ARPA) temporarily increased this credit to provide additional assistance to active caregivers during the COVID-19 pandemic. For 2021 only, ARPA has increased the limit of expenses that can be claimed to $8,000 for one qualifying individual and $16,000 for two or more qualifying individuals. The maximum amount of the credit has been increased to 50% of employment-related expenses, which equates to a maximum credit of $4,000 for one eligible person or $8,000 for two or more eligible people. In addition, in 2021, the credit became potentially refundable for the first time.
Normally, a taxpayer (and their spouse, if married and filing jointly) must have “earned income” to qualify for the child care and dependent care credit. However, special earned income rules apply to taxpayers and their spouses who are disabled. A disabled spouse is considered to have an income of at least $250 for each month or part of a month they are unable to support themselves. Thus, disabled taxpayers, or taxpayers whose spouse is disabled, can also benefit from this credit. Taxpayers who are unsure of their eligibility for the Child and Dependent Care Credit can use the interactive Child and Dependent Care Credit Eligibility Wizard on IRS.gov to determine their eligibility.
Missed refund deadline?
To receive a refund, Section 6511(a) of the Internal Revenue Code (IRC) generally requires a taxpayer to file a claim within three years from the date the return is filed or within two years from from the date the tax was paid, whichever is later. Section 6511(h) of the IRC provides an important exception. The time limit for filing a claim for reimbursement is suspended during any period during which a person is considered to be financially handicapped, i.e. a person is unable to manage his or her financial affairs due to a physical or medically determinable mental illness. The impairment must be provable and last or expected to last for a continuous period of 12 months (or expected to result in death). This suspension period only applies if no one, such as a spouse or guardian, is authorized to act on behalf of the taxpayer during the period of incapacity. Section 6511(h) of the IRC serves to protect refund law for taxpayers who may be due a refund but are unable to file a claim within the prescribed time for medical reasons.
Preparation of the tax declaration
The IRS’ Voluntary Tax Assistance (VITA) and Tax Counseling for Elderly (TCE) programs offer free basic tax preparation to qualified individuals. Although many VITA and TCE programs are only operational from January to April, some sites offer year-round support.
Those who are not eligible for free tax preparation services should exercise caution when selecting a tax preparer. Although there are many qualified tax professionals, many taxpayers have been harmed by unscrupulous tax preparers seeking to profit from tax preparer misconduct. Currently, anyone can claim to be a tax preparer, with no training or credentials required. Be especially careful with tax preparers who refuse to sign and provide information in the “For Paid Preparers Only” section of the tax return. Those who refuse to provide this information are called “ghost” preparers. Ghost preparers often require cash payment only and do not provide a receipt. They can invent income to qualify their clients for tax credits, claim false deductions to increase the refund amount, and have been found to direct refunds to their bank account, not the taxpayer’s account. TAS has advocated for legislation that would allow the IRS to set minimum proficiency standards for tax preparers. Although this legislative recommendation has been presented, it has not yet been adopted.
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. We are here to ensure that every taxpayer is treated fairly and that they know and understand their rights. Our advocates can help taxpayers with tax problems they were unable to resolve by working with the IRS on their own, and we recommend changes to Congress to help prevent future problems. Seniors and other taxpayers can visit the CAS website for helpful tips and resources, tax news and information, and to view our reports to Congress.
Eligible taxpayers can contact the Low Income Taxpayer Clinics (LITC) for assistance. LITCs are independent from the IRS and CAS. LITCs represent people whose income is below a certain level and who need to resolve tax issues with the IRS. LITCs are an excellent resource and can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court, including the Tax Court. Additionally, LITCs can provide information on taxpayer rights and responsibilities in different languages for people who speak English as a second language. LITCs should not charge more than a nominal fee for their services. For more information or to find a LITC near you, visit www.taxpayeradvocate.irs.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List. This publication is also available online at www.irs.gov/forms-pubs or by calling the IRS toll-free at 800-TAX-FORM (800-829-3676).