Nearly all taxpayers would like to reduce their tax bill this April, but that may be particularly true for seniors and retirees who may be living on a fixed income.
It’s especially important for older Americans to reduce their taxable income as much as possible because doing so can also reduce the amount they must pay for Medicare Part B and Part D premiums. Medicare premiums are based on your taxable income from two years prior and increase when you move from a lower income bracket to a higher one.
Fortunately, there are several tax breaks that can help older Americans reduce their taxable income and the amount they fork over to Uncle Sam every year.
“Congress and the states have made the decision to make these tax breaks available to seniors,” says Samuel Brunson, tax law professor at Loyola University Chicago. “Paying our taxes is important, but there’s no reason to pay more than what we actually owe.”
If you’re looking to increase your tax refund or lower the amount that you owe, the following tax breaks may be able to help:
Take a higher standard deduction
More than 87% of Americans choose to take the standardized deduction, rather than itemize their taxes, according to the IRS. For 2023 taxes, due April 15, the deduction is $13,850 for individual filers and $27,700 for married couples filing jointly. But those age 65 or over can take an even higher standard deduction — $15,700 for single filers and $30,700 for those who are married and filing jointly.
Write off health expenses
Taxpayers who itemize their deductions can write off medical expenses if they amount to at least 7.5% of their adjusted gross income. That includes not only out-of-pocket costs for medical care, but also the amount you pay in premiums for Medicare or other health insurance, as long as you didn’t already pay for it with pretax dollars. While this deduction is available to all taxpayers, seniors often have higher medical expenses and a lower income, making it more likely that they’ll reach the 7.5% threshold.
Additional retirement savings
If you’re still working, even part time, you can use “catch-up” contributions to boost the amount you save for retirement. If you’re 50 or older and have a 401(k) plan at work, you can stash an extra $7,500 in 2024. If you are working and don’t have a 401(k) plan, you may be able to put an extra $1,000 into an individual retirement account, or IRA. The money is tax-deferred, so it will reduce the amount of taxes you owe this year.
State and local property tax programs
Illinois and Cook County have a few programs to help reduce the tax burden on senior citizens. Senior residents don’t have to pay taxes on their Social Security payments, retirement account distributions or pensions.
“That’s one of the rare pluses in Illinois when it comes to tax provisions,” says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.
There are also several property tax provisions:
- Senior citizen homestead exemption: If you’re 65 or older and own and live in your house in Cook County, this program can reduce its assessed value (the amount you pay taxes on) by $8,000. Eligibility for the program means you’re also automatically qualified for the Homeowner Exemption, which reduces the assessed value of your home by another $10,000.
- Low-income senior citizens assessment freeze homestead exemption: If you’re age 65 or older and have a household income of $65,000 or less, you may qualify for this tax break, which freezes the current assessed value of your home. That means that the amount you pay taxes on will not increase even if home values go up.
- Senior citizens real estate deferral program: Under this state program, seniors with a household income of $65,000 or less may be able to defer up to $7,500 in property taxes. You or your heirs would have to pay back the taxes, with 6% interest, when you sell your home or when your estate has been settled.
If you’re not sure whether you can qualify for the above tax breaks, or you need additional help with your taxes, you may be able to get help for free. The city of Chicago provides free help to families earnings less than $64,000 per year, or $32,000 for individuals.
The AARP Foundation also offers assistance nationwide to taxpayers, with a focus on those age 50 and older. Find the nearest site to you by visiting the Illinois Department of Revenue website or calling 800-732-8866.
