The Tax Cuts and Jobs Act of 2017 sent legislators into last-minute negotiations before President Trump signed the legislation into law December 22, 2017. How does this tax reform affect U.S. citizens age 65 and older? What financial credits are still available for family caregivers?
The new tax laws are the most significant overhaul of the American tax system in more than 30 years. Most of the tax changes take effect for the tax years after December 31, 2017, and individual provisions expire after 2025.
How New Legislation Affects Taxpayers 65 and Older
The standard deduction has increased from $6,350 to $12,000 for singles and from $12,700 to $24,000 for married couples filing jointly. Taxpayers aged 65 and older or who are blind or disabled can continue to claim an additional $1,300 ($1,600 for unmarried taxpayers), as the additional standard deduction remains intact.
As in previous tax years, seniors may be able to reduce their taxes owed through a credit for the elderly or for those with disabilities. Also, if an individual is age 65 or older and receiving Social Security, this income, in many cases, is not included in gross income.
Tax Tips for Family Caregivers
Family caregivers may be able to claim a deduction for the care of a dependent parent or obtain a tax credit for caregiving expenditures under the Child and Dependent Care Credit (or Aging Parent Tax Credit). Some employers offer dependent care benefits through a flexible spending account, which can save employees from paying taxes on a dependent senior’s care, including the payment for adult day care and in-home care services. Medical expenses for a dependent parent are also tax deductible.
Other New Tax Rules That Affect Taxpayers in General
- Tax rates. The new law imposes slight rate adjustments to the seven tax brackets: 10, 12, 22, 24, 32, 35 and 37 percent.
- Itemized deductions. With the increase in standard deductions, many taxpayers will opt out of itemizing their taxes. Miscellaneous itemized deductions that no longer count include tax preparation costs, investment expenses and unreimbursed employee expenses.
- Exemptions. Starting in 2018, taxpayers cannot claim personal or dependency exemptions. The IRS was given the discretion to leave the withholding income tax on wages unchanged for 2018.
- State and local taxes. The new tax laws keep an itemized deduction for state and local income and property taxes, but starting in 2018, the total deductible amount is limited to $10,000. This new rule will more significantly impact property owners in high-tax states like New York and California.
- Medical expenses. For the tax years 2017 and 2018, medical expenses that exceed 7.5 percent of adjusted gross income (AGI) are deductible for all taxpayers. For most taxpayers, the previous threshold for deducting medical expenses was 10 percent of AGI. Also, starting in 2019, there will no longer be a penalty for failing to obtain minimum health coverage per the individual mandate under the Affordable Care Act.
Tax Preparation for Seniors
Be sure to check with a financial adviser to review tax laws in your specific state and to take advantage of tax benefits. For free tax assistance for seniors, contact the following resources:
- Tax Counseling for the Elderly (TCE) Program
TCE provides free tax help for any taxpayer but especially older adults. The IRS-certified volunteers answer common tax-filing questions about pensions and retirement-related issues. Visit https://irs.treasury.gov/freetaxprep/ to find a provider near you.
- Volunteer Income Tax Assistance (VITA) Program
VITA offers free tax help for the elderly, persons with disabilities, limited-English speakers and individuals who make $53,000 or less. For individuals who qualify, the IRS-certified volunteers can assist with basic income tax return preparation and electronic filing.
- AARP Foundation Tax-Aide Program
For low- to moderate-income taxpayers, particularly people age 50 and older, AARP offers free, individualized tax preparation at thousands of locations across the country. Visit https://www.aarp.org/money/taxes/aarp_taxaide/ or call (888) 687-2277 for more information.
What positive experiences have you had in saving tax dollars for your senior?
Right at Home does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
An award-winning journalist who has documented stories in nearly 20 countries, Beth Lueders is an author, writer and speaker who frequently reports on diverse topics, including aging and health issues for both U.S. and international corporations.