US Expat Tax Service for Seniors and Retirees

Written by: Josh Katz, CPA

The transition from working life to retirement is a significant milestone, especially for those who choose to spend their golden years abroad. For US citizens living abroad, the tax filing responsibility does not vanish with retirement. Hence, it’s still important for Seniors and Retirees to be aware of their filing responsibilities including applicable deductions and credits.

Universal Tax Professionals specializes in providing comprehensive assistance to seniors and retirees living abroad, ensuring they navigate complex tax laws efficiently and maximize potential benefits. From determining eligibility for retirement credits to optimizing Social Security and pension reporting, we offer a wide range of US expat tax services and tailored solutions to minimize tax liabilities and ensure compliance. With our expertise and personalized guidance, seniors and retirees can confidently file their taxes while enjoying peace of mind knowing their financial affairs are in capable hands.

US Tax Requirement for Seniors

Age alone does not exempt individuals from filing taxes, so seniors are still required to file a tax return if they meet certain income thresholds. Nevertheless, there are provisions in place that offer special considerations for older taxpayers.

Individuals aged 65 or older enjoy certain benefits in the tax code. For instance, they often have higher filing thresholds and standard deductions than younger taxpayers. These adjustments recognize the financial circumstances of seniors and retirees as they transition into retirement.

Moreover, there’s a tax credit specifically designed for elderly or disabled taxpayers. This credit, known as the Tax Credit for the Elderly or Disabled, provides additional tax relief for eligible individuals. It’s important to note that eligibility for this credit is based on age or disability status, along with income levels.

To claim this credit, taxpayers must complete Schedule R along with their tax return. Schedule R assists taxpayers in calculating the amount of the credit they qualify for based on their specific circumstances. This form considers factors such as income, filing status, and age or disability status to determine eligibility for the credit and the amount thereof.

Social Security Benefits

Social Security benefits play a crucial role in providing financial security for seniors during retirement. Understanding when and how to take Social Security benefits, as well as the tax implications, is essential for seniors and retirees, whether they reside in the US or abroad.

Table of Contents

Eligibility

Seniors become eligible for Social Security benefits typically at age 62, although full retirement age (FRA) varies depending on the year of birth. While seniors can begin taking Social Security benefits at age 62, delaying benefits until reaching full retirement age or even beyond can result in higher monthly payments.

Seniors living abroad are generally eligible for Social Security benefits as long as they meet the eligibility requirements set by the Social Security Administration (SSA).

Reporting and Taxation of Social Security Benefits

If Social Security benefits are the only source of income, they are typically not taxed, and seniors do not need to file a US tax return. However, if seniors have additional income, such as wages, self-employment income, pensions, or investment income, a portion of their Social Security benefits may be subject to taxation.

The IRS uses a formula called the “provisional income” to determine the taxability of Social Security benefits. Provisional income includes adjusted gross income, tax-exempt interest, and half of Social Security benefits.

If provisional income exceeds certain thresholds ($25,000 for single filers and $32,000 for married couples filing jointly), up to 85% of Social Security benefits may be subject to taxation.

Seniors or retirees who receive Social Security benefits must report those benefits on their federal income tax returns. They will receive Form SSA-1099 from the Social Security Administration (SSA), which provides the total amount of benefits received during the tax year. They should also be aware that state taxation of Social Security benefits varies by state. Some states fully exempt Social Security benefits from income tax, while others partially or fully tax them.

Form 1040 SR

Form 1040-SR is a specialized tax form designed specifically for seniors aged 65 and older. Introduced by the IRS in 2019, Form 1040-SR aims to simplify the tax filing process for older taxpayers by providing a more straightforward layout and larger font sizes.

Form 1040-SR is available to seniors aged 65 and older, regardless of their filing status or income level. While seniors can choose to use either Form 1040 or Form 1040-SR, Form 1040-SR is tailored to meet the needs of older taxpayers, offering a more user-friendly format.

Key Features of Form 1040-SR

Larger Font Size

One of the primary features of Form 1040-SR is the use of larger font sizes, making it easier for seniors with vision impairments to read and fill out the form.

Simplified Layout

The form includes a standard deduction chart specifically for seniors, simplifying the process of determining the standard deduction amount based on filing status and age.

Standard Deduction Chart:

Form 1040-SR has a simplified layout compared to Form 1040, with sections and instructions organized in a clear and concise manner.

Additional Lines for Reporting Retirement Income

Form 1040-SR provides additional lines for reporting various types of retirement income, such as pensions, annuities, and retirement account distributions, making it easier for seniors to accurately report their income.

Form 1040-SR
Source: IRS.gov

2024 US Expat Tax Guide

This comprehensive guide is packed with helpful information and expert advice to make sure you stay on top of your US tax obligations.

US Tax Guide for American Expats