Features

Senior citizens can have complex tax issues, but also different rules 

WASHINGTON – America’s tax law is meant to apply equally to people of all ages, but there are some special considerations that older taxpayers should keep in mind when tax filing season rolls around — and some places they can get tailor-made help. 

First off, people age 65 and older have higher income thresholds to determine whether they have to file a tax return. They also get a higher standard deduction. But they can frequently have a perplexing income picture that includes Social Security benefits, health costs, retirement plan distributions and pension payouts. 

Anna Maria Galdieri, a certified public accountant in Oakland, said one of the biggest obstacles for many of her older clients is grasping all of the complexities involved. 

“The problem is that people are so fearful of the IRS, they tend to just close up,” she said. “Particularly as people age, their ability to tolerate these things is limited.” 

For those who might have trouble affording professional help, the AARP offers a free tax service under a $3 million grant from the IRS. The service provides 31,000 volunteers at 10,000 sites around the country, as well as help via the Internet and free electronic tax filing. 

The average customer at AARP Tax Aide, as the service is known, is a woman age 65 or over with $20,000 or less in income per year. “Those are people who can least afford to pay for their tax returns,” said Sabrina Reilly, national communications coordinator for the program. 

People can find an AARP site near them by calling 1 (888) 227-7669 beginning Jan. 15 or by checking on the Web at http://www.aarp.org. 

For taxpayers doing their own returns, the IRS offers Publication 554 with information geared toward older Americans. Some highlights: 

— Social Security or railroad retirement benefits can be taxable. To figure this out, the IRS says to add one-half of total benefits with all other income, excluding such things as interest from U.S. savings bonds or adoption benefits.  

If the total is higher than the income threshold for your filing status, then taxes may be owed. 

“You can get in a situation where you add a little more income and that increases how much Social Security payments are included in income,” Galdieri said. “You can be paying a dollar in taxes for every dollar you add in income.” 

— To deduct medical expenses, taxpayers must itemize and costs must top 7.5 percent of adjusted gross income. Some long-term insurance care premiums may be included, as well as costs of a long-term care provider. 

Still, for many lower-income seniors, the deduction threshold is too high to make much difference. “It doesn’t make sense to think that these are appropriate levels,” Galdieri said. 

— The Credit for the Elderly or Disabled, a maximum of $1,125, is available for many people over age 65 as well as younger people who are “permanently and totally” disabled. The credit is subject to certain income limits. IRS Publication 524 has all the details. 

— Traditional individual retirement account distributions are generally taxable the year they are received. But non-traditional IRAs, such as a Roth IRA or a SIMPLE IRA, have different rules. Also, premature IRA distrubutions before age 59 1/2 can be subject to an additional 10 percent tax. On the other hand, most traditional IRAs require distributions or withdrawals at at 70 1/2. IRS Publication 590 sorts it all out. 

— Pension and annuity distributions are also taxable, except for the share of contributions made by the taxpayer. There are different rules governing annuities and pensions before and after 1987. IRS Publication 575 is available to help determine what’s taxable and what’s not. 

— Military retirement pay that’s based on length of service or age generally must be included in a taxpayer’s gross income. But military pay based on disability from active armed forces service is generally exempt from tax, and Department of Veterans Affairs benefits also are not included as income.