Key Takeaways
- Income taxes are often more complicated for older adults vs. younger generations.
- Required minimum distributions are taxed as ordinary income and raise retirees’ taxes.
- There is an additional standard deduction for age 65+ beyond the one for all taxpayers.
- There is another new senior tax deduction from 2025 through 2028 based on income.
- Social Security may be taxable, and pensions and annuities are fully or partially taxed.
Why Taxes Change After Age 65
Income taxes are generally more complex for people age 65+ than they are for younger working adults. There are new streams of income that get taxed (e.g., pensions, annuities), taxable required minimum distributions (RMDs), special standard deduction rules, and more.
Common tax concerns of older adults include:
- Taxation of Social Security benefits above relatively low income limits
- The tax impact of adding RMDs to other taxable income
- Federal and/or state taxation of pensions and Social Security
- Death of a spouse and change to single tax filing status
- Income thresholds for IRMAA Medicare premium surcharges
- Tax effects of part-time work or entrepreneurship
Some older adults actually earn more in retirement than when they were working with multiple streams of income (e.g., Social Security, pension, RMDs, investments, employment, and more). Others earn less. Either way, their income taxes are affected.
Sixteen income tax issues for older adults are described below:
1. Required Minimum Distributions (RMDs)
RMDs are money taxpayers age 73 or 75 (depending on birth year) are required to withdraw from tax-deferred retirement savings plans (e.g., 401(k)/403(b)/457, TSP, SEP-IRA, and Traditional IRA accounts). Withdrawals are taxed as ordinary income and required regardless of financial need.
Distributions can be taken in any manner a taxpayer wants as long as the correct RMD amount is taken annually. To calculate RMDs, divide the account balance on 12/31 of the previous year by the correct age-based life expectancy factor (divisor) in the IRS Uniform Lifetime Table. Large RMD distributions can often push taxpayers into a higher marginal tax bracket.
2. Qualified Charitable Distributions
Starting at age 70½, taxpayers can donate up to $108,000 annually (2025 limit) from a tax-deferred traditional IRA to a qualified charity, excluding the donation from otherwise taxable income. A QCD is made directly from the IRA custodian to the charity. If taken before RMD age, QCDs remove IRA assets from future taxation. If taken after, they can count toward RMDs.
3. Regular Increased Standard Deduction
Taxpayers age 65+ get a larger standard deduction than younger taxpayers. This is a blessing (taxes owed on a smaller amount of income) and a curse (higher “hurdle” to itemize deductions). As a result of the One Big Beautiful Bill Act (OBBBA), the 2025 standard duction (all ages) rose to $15,750 (single) and $31,500 (married filing jointly). On top of that, taxpayers age 65+ have an extra standard deduction ($2,000 for singles and $1,600 for each spouse in a married filing jointly couple).
4. New Senior Tax Deduction
In addition to the deduction mentioned above, OBBBA established a new “below-the-line” deduction (subtracted after adjusted gross income or AGI is calculated) through 2028 for older taxpayers whether they itemize deductions or not: $6,000 for singles and $12,000 for married filing jointly if both age 65+. Phaseouts begin at modified AGI or MAGI of $75,000 (single) and $150,000 (married filing jointly) with the deduction fully phased out at $175,000 (single) and $250,000 (married filing jointly).
5. Form 1040-SR
Form 1040-SR, with its larger font size and user-friendly layout, was originally developed for taxpayers age 65+ when more people filed paper tax returns. Today, eligible individuals can file it either by paper or electronically using commercial tax software or a paid preparer. Taxpayers do not have to be retired to use 1040-SR, and they can take the standard deduction or itemize.
6. Taxable Social Security Benefits
Tax on Social Security is based on a calculation called “combined income” (AGI + nontaxable interest + half of Social Security income). If combined income is greater than $25,000 (single) and $32,000 (married filing jointly), up to 50% of Social Security is taxable.
If combined income is greater than $34,000 (single) and $44,000 (married filing jointly), up to 85% of Social Security is taxable. These income ranges have not been inflation-adjusted since Social Security taxation began in 1984. Withholding is available to cover this tax liability.
7. Catch-Up Contributions
Starting at age 50, older workers can contribute more to individual retirement accounts (IRAs) and employer retirement savings plans. The 2025 IRA catch-up is $1,000 for a maximum of $8,000, and the employer plan catch-up is $7,500 for a maximum of $31,000. There is also a new catch-up contribution limit for workers aged 60, 61, 62, and 63. In 2025, it is $11,250 for a maximum contribution of $34,750.
8. No More Early Withdrawal Penalties
Before age 59½, there is an early withdrawal penalty on all tax-deferred retirement savings plans and Roth IRAs funded with after-tax dollars. Example: $10,000 early withdrawal x .10 = $1,000 penalty, treated as additional income. After age 59½, the penalty goes away, thereby providing more flexibility regarding the timing of income withdrawals.
9. Death of a Spouse
After being widowed, surviving spouses can only file as married filing jointly for the year of the death. After that, they must generally file as single, which often results in a higher tax bill. Single taxpayers have lower income ranges for each of the seven marginal tax brackets as well as lower income “triggers” for tax on Social Security benefits. There is also the Medicare premium surcharge for higher-income older adults called IRMAA (income-related monthly adjusted amount).
10. Medical Expense Deduction
While this deduction can be taken at any age by people who itemize, older adults typically have higher health care costs. They can deduct qualified unreimbursed medical expenses that exceed 7.5% of AGI. Example: $40,000 AGI: expenses exceeding $3,000 ($40,000 x 0.075). Qualified expenses include false teeth, hearing aids, crutches, wheelchairs, eyeglasses, and the prepaid long-term care component of a continuing care retirement community entrance fee.
11. Income Tax Scams
Older adults are frequent scam targets because they have greater accumulated wealth and may be easier to contact. Common tax fraud scams include asking victims to disclose their Social Security number or bank account information, requests to make tax payments via prepaid debit cards or wire transfers, and false tax returns filed to obtain fraudulent refunds,
12. Larger Taxable Accounts
Regular deposits into taxable (brokerage) accounts over many decades can lead to higher tax bills as balances increase. This is especially true when large distributions are received from mutual funds. Older adults may own 1,000s of shares vs. 100s as young adults and taxable distributions are received whether they need the money or not.
13. Tax Filing Thresholds
Older adults can earn slightly more than those under age 65 before they are required to file an income tax return. That’s because they have a higher standard deduction. When income is less than the standard deduction, taxpayers generally don’t need to file a tax return. Therefore, the 2025 tax filing thresholds are $17,750 (single) and $34,700 (married filing jointly).
14. Tax Implications of Continued Work
About 20% of older adults are working beyond traditional retirement age because they want to or need to. Additional income can affect marginal tax brackets, taxation of Social Security benefits, and IRMAA premiums. It can also provide additional years of retirement plan savings. Continuing to work can also increase Social Security benefits by replacing lower earning years with higher earning years in the benefit calculation formula.
15. New Taxable Income Sources
Many older adults have taxable income sources that they did not have as young adults. In addition to RMDs, this includes withdrawals from investment accounts, pensions, and annuities. Pensions are fully taxable if retirees did not make any after-tax contributions and partially taxable if they did, with a portion of each payment considered a tax-free return of their contributions.
Annuities funded with pre-tax dollars are typically taxed as ordinary income. For those funded with after-tax dollars, only the earnings portion is taxed as ordinary income and original contributions are tax-free.
16. Capital Gains Planning
Older adults with reduced income following retirement and a need for investment income may be able to strategically recognize long-term capital gains to take advantage the 0% capital gains tax bracket. In 2025, this applies to taxable income up to $48,350 (single) and $96,700 (married filing jointly). Taxable income is calculated after taking the standard deduction or itemized deductions.
Final Thoughts
Older adults face unique income tax challenges and opportunities, and certain aspects of tax law just affect older adults. In addition, income taxes are intertwined with Social Security benefits and Medicare premiums. Learning the basics and getting professional help when needed are keys to successfully navigating America’s complex and ever-changing income tax system.
