The recent legislative action passed by Congress references a senior tax credit. Let’s take a look at the details of this bill to help you understand what this senior tax credit is.
GoBankRates published an article this week that recaps this well. An important point they reference is that the senior tax credit is subject to specific qualifications and has an expiration date. Here are more details for you to understand.
Photo by Markus Winkler on Unsplash
Who Qualifies?
To qualify, be sure to meet these criteria:
- Age: You must be at least 65 years old.
- Income: Your modified adjusted gross income (MAGI) must be less than $175,000 if filing individually. Married couples filing jointly can both claim the deduction if both spouses are 65 or older and their combined MAGI is less than $250,000.
How Much is the Deduction?
Eligible individuals can deduct up to $6,000, and married couples who both qualify can deduct up to $12,000. This deduction is in addition to the standard senior deduction most already qualify for — currently $1,600 for married couples and $2,000 for single filers who aren’t surviving spouses.
This deduction begins to phase out as income exceeds certain levels: $75,000 for individuals and $150,000 for joint filers.
For each dollar above those thresholds, your deduction decreases by 6%. Once your MAGI hits the full cap, the deduction disappears entirely.
For example, if a single filer has a MAGI of $100,000, that’s $25,000 over the threshold. Multiply that by 6% and you’ll lose $1,500 of the deduction, bringing your benefit down to $4,500.
Calculate Your Deduction
Start by calculating your combined income, which includes:
- Adjusted gross income (AGI)
- Tax-exempt interest income
- Half of your Social Security benefits
It’s important to note: The bill did not eliminate taxes on Social Security benefits, despite some expectations.
Here’s how that still works:
- Single filers with combined income between $25,000 and $34,000 pay tax on up to 50% of benefits.
- Joint filers between $32,000 and $44,000 face the same.
- Above those ranges, up to 85% of benefits may be taxable.
- Only filers below $25,000 (single) or $32,000 (joint) avoid taxation on Social Security.
Image by StockSnap from Pixabay
What if you Itemize?
This deduction doesn’t force you to choose between itemizing or taking it. Eligible seniors can claim the full deduction even if they itemize. For example, if your itemized deductions total $30,000, you can add the $6,000 senior deduction to bring your total to $36,000 in write-offs
Double Check
As with so many things in life, check with your tax planner to double-check what applies to your situation when it comes time to file taxes. Nothing is “once and done” when it comes to senior tax credits, other tax rules, financial planning, legal planning, and healthcare choices, etc.
If you’re ready to review what you’ve completed and what remains to be completed, reach out, and I’ll walk you through step by step. Send me an Email or Book a Time with Lynn if you have any questions. For additional information about my work, check out @ The Living Planner or @ The Living Planner.
If you’re up for planning your life’s administrative side, my book is a resource. The Living Planner What to Prepare Now While You Are Living © Check it out HERE.
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