Updated for Tax Year 2020. The Internal Revenue Service extends a special credit to older taxpayers called the Credit for the Elderly or the Disabled. This tax break allows individuals and couples to reduce the amount of their income tax by their allowable credit .
Generally, the elderly tax credit is 15% of the initial amount, less the total of nontaxable social security benefits and certain other nontaxable pensions, annuities, or disability benefits you’ve received. 31, 2020 and you were permanently and totally disabled at the start of retirement.
Taxpayers who are under 65 years of age can still claim the tax credit if they are retired on permanent and total disability , or if they receive taxable disability income during the year and do not reach the mandatory retirement age by the first day of the tax year.
Adults who are 65 and older get an extra $1,600 added to their standard deduction if they’re filing as single, head of household, or married filing separately. Married couples filing jointly may add another $1,300 for each spouse who is 65 or older , as can qualified widow(er)s.
However, if you live on Social Security benefits alone, you don’t include this in gross income . If this is the only income you receive , then your gross income equals zero, and you don’t have to file a federal income tax return .
At 65 to 67, depending on the year of your birth, you are at full retirement age and can get full Social Security retirement benefits tax -free.
If you do qualify for the credit for the disabled, the amount ranges from $3,750 to $7,500 , depending on your filing status and income. You must complete IRS Schedule R to figure the amount of the credit. This credit is nonrefundable. This means you get it only if you owe income tax to the IRS.
65 or older
If you work past your full retirement age (FRA) and have earned income, you’ll still have to pay Social Security taxes, even if you’re already collecting benefits.
To be eligible for the DTC, you must be significantly restricted, all or substantially all the time (at least 90% of the time), in two or more of the basic activities of daily living or in vision and one or more of the basic activities of daily living, so that the cumulative effect of the restrictions when considered
Social security income is support provided by the individual, and government assistance, like SSI , is support that comes from a third party. So, if most of their support comes from government assistance, you won’t be able to claim them as dependents . The qualifying-relative rule also has an income test.
A person is permanently and totally disabled if both of the following apply. He or she can’t engage in any substantial gainful activity because of a physical or mental condition. A physician determines that the disability has lasted or can be expected to last continuously for at least a year or can lead to death.
For the year you are filing, earned income includes all income from employment, but only if it is includable in gross income . Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker’s compensation benefits, or social security benefits.
The standard deduction for 2020 is $12,400 for singles and $24,800 for married joint filers. There is also an “additional standard deduction,” for older taxpayers and those who are blind. A married filer who is blind or aged 65 and over can claim $1,300 for themselves.
Seniors do not pay tax until they earn $32,279 a year, whereas younger households have an effective tax-free threshold of $20,542 . These outcomes are hard to justify. A retired couple pay about $4000 a year in tax on earnings of $70,000 a year from their assets (assuming assets outside of super worth $1.4 million).