Tax Help for Seniors and Retirees

Retirement does not end your tax return. It changes what is on it: Social Security, pensions, IRA and 401(k) withdrawals, investment income and sometimes part-time work or rental income. For retirees in Naperville, Aurora and across Chicagoland, the questions usually come down to how much of each source is taxable, how to avoid penalties on required withdrawals, and which senior deductions apply. The rules for 2025 and 2026 include a new deduction for people age 65 and older.

The deductions that apply at 65

The 2025 standard deduction is $15,750 for single filers and $31,500 for joint filers, and the additional amounts above are added for each spouse who is 65 or older by the end of the year. The IRS treats anyone born before January 2, 1961 as 65 for 2025. For 2026 the base amounts are $16,100 and $32,200, with additional amounts of $2,050 (unmarried) and $1,650 (married).

The separate senior deduction of up to $6,000 per eligible person ($12,000 for a couple where both qualify) applies for 2025 through 2028. It phases out for modified adjusted gross income above $75,000 ($150,000 joint), requires a Social Security number, and requires married couples to file jointly. You can claim it whether or not you itemize. See our guide to new deductions for tips, overtime and seniors.

How Social Security is taxed

Benefits are taxable only when your "combined income" (adjusted gross income, tax-exempt interest and half of your benefits) is above a base amount: $25,000 if single or $32,000 if married filing jointly. Above those levels, up to 50 percent of benefits can be taxable, and above $34,000 (single) or $44,000 (joint), up to 85 percent can be taxable. These base amounts are not adjusted for inflation, so more retirees cross them every year. You can ask the Social Security Administration to withhold federal tax with Form W-4V, or make estimated payments. Read more in our Social Security taxation guide.

Required minimum distributions

Most IRA and employer plan owners must begin required minimum distributions (RMDs) at age 73. You can delay the first one until April 1 of the following year, but then two distributions fall in the same tax year. The penalty for taking too little is a 25 percent excise tax on the shortfall, reduced to 10 percent if you correct it within two years, reported on Form 5329. The IRS may waive it for reasonable error. See the IRA and 401(k) guide.

If you give to charity, a qualified charitable distribution (QCD) sends money straight from an IRA to a charity, starting at age 70½. It can count toward your RMD and is left out of income whether or not you itemize. The limit is $108,000 for 2025 and $111,000 for 2026. Because the gift never appears in your income, it may also help limit how much of your Social Security is taxed.

Medicare, medical costs and long-term care

Medicare Part A, B and D premiums can count as medical expenses, but only the part of your total medical costs above 7.5 percent of adjusted gross income is deductible, so many retirees do not itemize. For 2026, qualified long-term care premiums count up to $6,200 for those over 70, depending on age. Higher income can also raise Part B and Part D premiums, so withdrawals and Roth conversions should be planned with that in mind. A Roth conversion in a lower-income year is one common approach.

Illinois and local rules

Illinois taxes income at a flat 4.95 percent for 2025, but you can subtract federally taxed Social Security, railroad retirement and most qualified retirement income such as pensions and IRA distributions on your Illinois return. Wages, interest, dividends and capital gains remain taxable. Property taxes are a separate cost, and some Illinois property tax breaks are available to older homeowners through county offices.

Planning points specific to retirees

• Withholding. Tax withheld from pensions and IRA withdrawals depends on the withholding form you gave the payer, so some retirees owe tax in April. Compare year-to-date withholding with your projected tax.
• Home sale. Selling a long-time home can trigger gain even with the exclusion, so review the home sale exclusion before you list.
• Gifts. You can give up to $19,000 per person in 2025 and 2026 without filing a gift tax return. See estate and gift tax basics.
• Beneficiaries. Update designations on retirement accounts, because they override a will. Heirs who inherit an IRA face their own deadlines; see estates, trusts and inheritance.
• India-related items. Retirees with accounts or pensions in India, or who split time between countries, should review residency rules and NRE and NRO accounts.

How we can help

We prepare federal and Illinois returns for retirees, project the tax effect of RMDs, Roth conversions and charitable gifts, and help set up withholding or estimated payments. If you are helping a parent or spouse, we can work with the family on records and filings. See tax planning and individual tax preparation, or visit our Naperville page. This page is general information, not advice for your situation.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.