There is a common misunderstanding that once you reach a certain age you are no longer required to pay taxes. It may seem that way sometimes, but it is due to the fact that your taxable income is below the filing threshold because of your age; not due to your age itself. Actually, the amount of tax you pay is tied to your income; but several tax breaks are given to those in their golden years.
A single person under age 65 is not required to file a tax return in 2019 if their income is less than $12,200; the requirement becomes $13,850 once you turn 65. This is because taxpayers age 65 and older are allowed a higher standard deduction.
Social security may or may not be taxable based on the income the taxpayer received both from social security and other sources. If ½ of social security plus income from other sources is less than a base amount [$25,000 ($32,000 MFJ, $0 MFS], none of the social security benefits received is taxable. If it is between the base amount and the adjusted base amount [$34,000 ($44,000 MFJ, $0 MFS)], 50% of the social security benefits received are taxable; and if it is above the adjusted base amount, then 85% of the social security benefits are taxable to the recipient. Depending on the amount, either 0%, 50%, or 85% of social security is taxable.
The elderly are more likely to incur large medical expenses that could be deductible. Such expenses in 2019 must exceed 10% of adjusted gross income. In addition, medical insurance, including Medicare and supplementary insurance, may be included in the total. Long-term care insurance, home improvements made for medical purposes, long-term medical care, including in-home health care, may also be deducted.
A tax credit, Credit for the Elderly and Disabled, is available to taxpayers age 65 and over. The credit is 15% of a base amount less nontaxable money received. The maximum amount of income qualifying for the credit is $17,500 ($25,000 MFJ). A married couple generally must file a joint return in order to take the credit. Nontaxable income must be less than $5,000 ($7,500 MFJ, $3,750 MFS).
North Carolina also has some provisions for retirees. The amount of social security that is taxable for federal purposes is not taxed in North Carolina. Another subtraction aimed at seniors is The Bailey Settlement, named for James Bailey who started a class action lawsuit based on the premise that vested former government employees should not be taxed on their retirement upon withdrawal. The Bailey decision provides that NC government retirees with five years of service as of August 12, 1989, not be assessed state income tax on money received from certain retirement plans. This also applies to federal government retirees that receive annuity payments in lieu of social security.
While there are several tax breaks given to senior citizens, it does not negate the need to file a tax return if the adjusted gross income is sufficient to generate tax. Age is not the only factor determining the need to file a tax return.
The above information is provided for general educational purposes only and may not reflect changes in tax laws. Before taking any action based on this information, consult with your tax advisor about your specific situation.
Ask Shelley about your taxes at 828 200 1556.