Taxpayers who are winding down full-time work may think that they can also wind down their tax return filing requirements. However, taxpayers are never too old to have a filing requirement. Although age is a consideration, filing requirements are determined by a variety of factors such as filing status, the type and amount of income received, and yes, even age. For 2021, single taxpayers are required to file a tax return if their gross income is $12,550 or more; however, single taxpayers 65 or older are not required to file unless their gross income is $14,250 or more.
Many elderly taxpayers receive Social Security or Railroad Retirement benefits, both of which are based on prior earnings. The taxability of these benefits is not determined by age, but rather by filing status and the type and amount of other income received. TAS research shows that 98.4 percent of the 2020 tax returns filed by taxpayers 65 or older reported other income in addition to Social Security and Railroad Retirement benefits.
Even though Social Security and Railroad Retirement benefits are based on a taxpayer’s earned income, these benefits are not considered income for such refundable credits as the Earned Income Tax Credit (EITC). For tax year 2020, about four percent of the returns filed by taxpayers 65 and older reflected at least one exemption for a child – with nearly 97 percent of these taxpayers receiving Child Tax Credit. And for tax year 2020, 45 percent of the returns filed by taxpayers 65 or older reported pension or annuity income but reflected no income from wages. For many older taxpayers now raising their grandchildren, the option to claim EITC based on Social Security or Railroad Retirement benefits, or other retirement income based on a taxpayer’s earnings history, would further the credit’s goal of providing assistance to lower income families. This is especially true in multi-generational households, where raising children two or more generations removed may have been unplanned. In that vein, I have proposed legislative changes for restructuring and modernizing the EITC. Because the EITC is a credit for lower income families, its eligibility should more accurately reflect its target population.
Taxpayers 65 or older, and taxpayers under age 65 who receive taxable disability income due to being retired on permanent and total disability, may qualify for the Credit for the Elderly or Disabled. To be eligible for this credit, qualified individuals must also meet two income limitations: both their adjusted gross income and the total of their nontaxable Social Security and other nontaxable pensions, annuities, or disability income, must be below the designated amounts corresponding to the taxpayer’s filing status. If eligible, taxpayers should complete Schedule R, Credit for the Elderly or Disabled, and attach it to their tax return when filing. Taxpayers needing assistance to determine if they are eligible for this credit can use the IRS’s interactive tool, Do I Qualify for the Credit for the Elderly or Disabled?
Taxpayers paying a care provider to care for a spouse (or other qualifying relative) who was physically or mentally incapable of self-care so they could work or look for work should also consider their eligibility for the Child and Dependent Care Tax Credit. In 2021, the American Rescue Plan Act of 2021 (ARPA) temporarily increased this credit to provide additional help to working caregivers during the COVID-19 pandemic. For 2021 only, ARPA increased the limit on expenses that can be claimed to $8,000 for one qualifying person and $16,000 for two or more qualifying persons. The maximum credit amount was raised to 50 percent of employment-related expenses, which equals a maximum credit of $4,000 for one qualifying person or $8,000 for two or more qualifying persons. In addition, in 2021, the credit became potentially refundable for the first time.
Normally, a taxpayer (and spouse, if married filing jointly) must have “earned income” to qualify for the Child and Dependent Care Credit. Special earned income rules apply, however, for taxpayers and their spouses who are disabled. A disabled spouse is considered to have earnings of at least $250 for each month or part of a month they are unable to care for themselves. Therefore, disabled taxpayers, or taxpayers with a disabled spouse, may also benefit from this credit. Taxpayers who are uncertain regarding their eligibility for the Child and Dependent Care Credit may use the Interactive Child and Dependent Care Credit Eligibility Assistant on IRS.gov to determine eligibility.
To receive a refund, Internal Revenue Code (IRC) section 6511(a) generally requires a taxpayer to file a claim within three years from the date a return was filed or two years from the date the tax was paid, whichever is later. IRC section 6511(h) provides for a significant exception. The timeframe to file a claim for refund is suspended during any period an individual is determined to be financially disabled meaning, an individual is unable to manage their financial affairs by reason of a medically determinable physical or mental impairment. The impairment must be provable and last or be expected to last for a continuous period of 12 months (or be expected to result in death). This suspension period only applies if no one, such as a spouse or guardian, is authorized to act on the taxpayer’s behalf during the period of their impairment. IRC section 6511(h) serves to protect the refund statute for taxpayers who may be due a refund but are unable to file a claim within the prescribed time period due to medical reasons.
The IRS’s Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs offer free basic tax return preparation to qualified individuals. Though many VITA and TCE programs are only operational January through April, some sites offer year-round assistance.
Those not eligible for free tax return preparation services should exercise caution when selecting a tax return preparer. Though there are many qualified tax professionals, many taxpayers have been harmed by unscrupulous return preparers seeking to gain from return preparer misconduct. Currently, anyone can hold themselves out as a tax return preparer, with no training or credentials required. Be particularly cautious of return preparers who refuse to sign and provide information in the “Paid Preparer Use Only” section of the tax return. Those who refuse to provide this information are known as “ghost” preparers. Ghost preparers often require payment in cash only and do not provide a receipt. They may invent income to qualify their clients for tax credits, claim fake deductions to boost the size of the refund and have been found to direct refunds into their bank account, not the taxpayer’s account. TAS has advocated for legislation that would authorize the IRS to establish minimum competency standards for return preparers. Although this legislative recommendation has been introduced, it has not yet been passed.
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. We’re here to ensure that every taxpayer is treated fairly and that they know and understand their rights. Our advocates can help taxpayers with tax problems they haven’t been able to resolve working with the IRS on their own and we recommend changes to Congress to help prevent future problems. Seniors and other taxpayers can visit the TAS website for helpful guidance and resources, tax news and information, and to view our reports to Congress.
Eligible taxpayers can reach out to Low Income Taxpayer Clinics (LITCs) for assistance. LITCs are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs are a great resource and can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court, including the Tax Court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. LITCs must not charge more than a nominal fee for their services. For more information or to find an LITC near you, visit www.taxpayeradvocate.irs.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List. This publication is also available online at www.irs.gov/forms-pubs or by calling the IRS toll-free at 800-TAX-FORM (800-829-3676).
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.