Is There a Different Tax Rate for People Over 65 Years Old?

A common question among older Americans is whether federal income tax rates change once they reach a certain age. The structure of the marginal tax brackets remains the same for all taxpayers regardless of age. However, turning 65 unlocks several tax provisions that can lead to a lower overall tax bill. These age-related benefits are not a different tax rate but a series of adjustments, deductions, and credits.

These provisions include a larger standard deduction, different income thresholds for filing a tax return, and distinct rules for taxing retirement income like Social Security.

The Higher Standard Deduction for Seniors

A primary tax benefit for individuals 65 and older is a higher standard deduction. The standard deduction is a set dollar amount that reduces your taxable income without requiring you to itemize deductions like mortgage interest or charitable gifts. The tax code provides an additional amount to the base standard deduction for taxpayers who are age 65 or older by the end of the tax year.

For the 2024 tax year, a single individual 65 or older gets an additional standard deduction of $1,950. This is added to the regular standard deduction of $14,600, for a total of $16,550. This increased amount directly lowers their adjusted gross income (AGI) and can reduce their final tax liability. The IRS considers a taxpayer to be age 65 on the day before their 65th birthday.

The rules for married couples depend on the age of each spouse. If only one spouse is 65 or older, they can add an additional $1,550 to their joint standard deduction for 2024. If both spouses are 65 or older, this additional amount doubles to $3,100. For 2024, a married couple with both spouses over 65 has their standard deduction rise from $29,200 to $32,300.

An additional standard deduction is also available for individuals who are legally blind, and this amount can be claimed in addition to the increase for age. For the 2024 tax year, a single filer receives an additional deduction of $1,950 for being age 65 or older and another $1,950 for being blind. If a single filer meets both conditions, their standard deduction increases by $3,900.

For married couples, the additional amount is $1,550 per condition. For example, if one spouse is over 65 and blind, that spouse qualifies for two additional amounts. This increases the couple’s standard deduction by $3,100, which is $1,550 for age plus $1,550 for blindness.

Filing Thresholds for Individuals Over 65

The income level that requires an individual to file a federal tax return is the filing threshold. For individuals 65 and older, these thresholds are higher because they are based on the larger standard deduction available to seniors. This means many retirees with modest incomes may not be required to file a federal return at all.

For the 2024 tax year, a single person aged 65 or older must file a tax return if their gross income is $16,550 or more. This figure is the sum of the $14,600 standard deduction and the $1,950 additional deduction for age.

For a couple filing jointly where one spouse is 65 or older, the 2024 filing threshold is $30,750. If both spouses are 65 or older, the threshold increases to $32,300. For a qualifying surviving spouse who is 65 or older, the threshold is $30,750.

Gross income includes all income received that is not tax-exempt, such as wages, dividends, interest, and distributions from retirement accounts. Even if a senior’s income is below the filing threshold, they may still want to file a return. Filing allows you to receive a refund for any federal income tax withheld or to claim certain refundable tax credits.

Taxation of Common Retirement Income

Social Security Benefits

The taxation of Social Security benefits depends on a taxpayer’s “provisional” or “combined” income. This figure is calculated by taking your modified adjusted gross income (MAGI), adding any nontaxable interest, and then adding 50% of your Social Security benefits. For the 2024 tax year, if you file as an individual and your provisional income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your provisional income is more than $34,000, up to 85% of your benefits may be taxable.

For those who are married and filing jointly, the income thresholds are different. If your combined provisional income as a couple is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. If your combined provisional income is more than $44,000, up to 85% of your benefits could be subject to tax. Taxpayers with provisional income below these thresholds will not owe federal income tax on their Social Security benefits.

For example, a single individual with $20,000 in retirement account distributions, $2,000 in non-taxable interest, and $16,000 in Social Security benefits for the year has a provisional income of $30,000. This is calculated as $20,000 (MAGI) + $2,000 (interest) + $8,000 (50% of Social Security). Since this amount falls within the $25,000 to $34,000 range, up to 50% of their Social Security benefits would be taxable.

Pensions and Annuities

Income from pensions and annuities is taxable as ordinary income at the federal level, similar to wages. The amount of tax owed depends on your total taxable income and tax bracket. Payers of these benefits report the taxable amount on Form 1099-R.

The taxable portion of a pension or annuity depends on your investment in the contract. If you did not contribute after-tax money to the plan, the full amount of the distributions is taxable. If you made after-tax contributions, a portion of the distributions may be a tax-free return of your capital.

Withdrawals from Retirement Accounts

Withdrawals from traditional retirement accounts, like traditional IRAs and 401(k)s, are taxed as ordinary income. Contributions to these accounts are made with pre-tax dollars, so taxes are deferred until retirement. The distribution is added to your other income and taxed at your regular marginal tax rate.

In contrast, qualified withdrawals from Roth IRAs and Roth 401(k)s are tax-free because contributions are made with after-tax dollars. A qualified distribution must be made after the account owner reaches age 59½ and the account has been open for at least five years.

Retirees must take Required Minimum Distributions (RMDs) from their traditional retirement accounts. The SECURE 2.0 Act raised the age for beginning RMDs to 73 for individuals who turn 72 after December 31, 2022. These mandatory withdrawals are fully taxable as ordinary income.

Relevant Tax Credits and Itemized Deductions

Credit for the Elderly or Disabled

The Credit for the Elderly or Disabled is available to some lower-income seniors. This is a non-refundable credit, which can reduce your tax liability to zero, but you cannot get any of it back as a refund. To qualify, you must be age 65 or older by the end of the tax year or be retired on permanent and total disability.

The income limitations for this credit are strict. For a single individual, your adjusted gross income (AGI) must be less than $17,500, and your nontaxable Social Security or other disability income must be less than $5,000. For married couples filing jointly where both spouses qualify, the AGI limit is $25,000, and the nontaxable income limit is $7,500. The credit is calculated on Schedule R, which is filed with your tax return.

Medical Expense Deduction

Taxpayers with significant medical costs may benefit from the medical expense deduction. This is an itemized deduction, meaning you must itemize on Schedule A instead of taking the standard deduction. This choice is advantageous only if your total itemized deductions exceed your available standard deduction.

You can only deduct the amount of your medical expenses that is more than 7.5% of your adjusted gross income (AGI). For example, if your AGI is $60,000, you can only deduct medical expenses that exceed $4,500.

Qualifying costs include a wide range of expenses. These can include:

• Health insurance premiums, including for Medicare Parts B and D
• Prescription drugs
• Payments for long-term care services
• Payments to doctors and dentists
• The cost of medical equipment
• Transportation costs for medical care, which can be calculated at a standard mileage rate