| If you paid part of the cost of your pension or annuity plan, you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. The rest of each payment is taxable. |
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| If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. The premiums can be for coverage for you, your spouse, or dependent(s). |
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Certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable.
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Under certain circumstances, all or part of your social security benefits and equivalent tier 1 railroad retirement benefits may be nontaxable.
A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable.
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Food benefits you receive under the Nutrition Program for the Elderly (now known as the Nutrition Services Incentive Program) are not taxable.
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When it comes to deductions, if you do not itemize deductions, you are entitled to a higher standard deduction if you are age 65 or older at the end of the year. You are considered age 65 on the day before your 65th birthday.
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You can take the higher standard deduction if your spouse is age 65 or older or blind and you file a joint return, or you file a separate return and can claim an exemption for your spouse because your spouse had no gross income and an exemption for your spouse could not be claimed by another taxpayer.
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| If you itemize deductions, keep in mind that there are a number of medical expenses specific to the elderly that may be deducted; just go back to one of our newsletters from earlier this year. |
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| There is also a special credit for seniors, the Credit for the Elderly or Disabled, which is a nonrefundable credit designed to benefit low-income, older individuals, or individuals whose ability to earn income is severely affected by a permanent disability. It is available for American citizens or resident aliens who are 65 or older and whose adjusted gross income and nontaxable income fall under specific limits. Calculations for the credit are very complex and the amount of credit you can claim is generally limited to the amount of your tax. |
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| You should also know that as an elderly you may get help with your taxes from the Volunteer Income Tax Assistance (VITA) program. |
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There are many other less common situations in which you may be entitled to special tax provisions favoring the elderly or senior citizens, therefore help from a tax professional will always be the best option.
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