The question is often asked, “Do senior citizens or pensioners pay income tax?” The short answer is yes. However, this is no different than what happens in other parts of the world, including our neighbours up north in the United States. Although seniors do pay income tax, they also enjoy additional tax exemptions.

The first thing that a retiree, pensioner or senior citizen needs to understand is that information is available to guide them on what are the tax exemptions to which they are entitled, based on their particular circumstances and how do they go about accessing them. They also need to understand that like other persons, it is ALL income that is considered in determining how much tax, if any, they are to pay.

Income sources

There is the common misconception that only pension income is considered in determining how much a pensioner or a senior citizen earns. However, other sources of income that they have, such as, Bank Interest, Dividends, Rent, Farming, Fees or Commissions, Business Profits, Employment, are also considered.

As a matter of fact, under the Income Tax Act, pensioners and senior citizens who are residents in Jamaica for a period totalling 6 months or more, must include or declare all income earned from other countries, also known as World Income. Of course, they would get credit for any tax already paid.

Exemption for pensioners and senior citizens

But what exactly are the tax exemptions or benefits that seniors are entitled to. This would be dependent on the age of the person and whether or not they are receiving a pension. Currently the law allows for the following income tax threshold and exemptions, relating to the year 2013:

*Pension exemption – $80,000.

*Age exemption (65 years) – $80,000.

*Income Tax Threshold – $507,312.

Based on the law the following exemptions would apply depending on the status of a person:

*Persons under 55 years old, who receive a pension from a statutory pension scheme, such as NIS Pension, or from an Approved Superannuation Scheme, are entitled to the tax exemption amount of $80,000. This is applied against that Pension income only. They would also get the income tax threshold of $507,312, totalling $587,312.

*Persons 55 years and over, who receive a Pension from a Statutory Pension Scheme or an Approved Superannuation Scheme are entitled to a tax exemption amount of $80,000 from that pension income and any other source of income, plus income tax threshold of $507,312, totalling $587,312.

*Pensioners who are 65 years and over, are entitled to an exemption of $80,000 for age relief plus 80,000 pension relief, plus the income tax threshold of $507,312.00, totalling $667,312.

It should be carefully noted that if a person is not a Pensioner, but is 65years and over, they are entitled to the age relief of $80,000, as well as the threshold of $507,312. It should also be noted that Non-resident Pensioners are entitled to the exemptions, but not the income tax threshold, which is only granted to Jamaican residents.

Income tax is then only to be computed on income, from all sources, earned in excess of any exemption and the income tax threshold to which a senior is entitled.

Exemption for withholding tax

Exemptions are not automatically applied, particularly in the case of tax on income imposed at source, such as tax withheld by the bank or by an employer if the person is still employed. The pensioner or senior citizen would need to apply to the tax authority for an exemption on withholding tax. This would be processed and the financial institution or employer advised of the amount of the exemption to which the person is entitled.

In applying for the exemption on withholding tax, the following documents are required: Taxpayer registration number (TRN); proof of age (birth certificate, golden ager id card, passport, driver’s licence); proof of pensioner’s current pension slip, stub or receipt; documentary proof of any other source of income including interest income (withholding tax certificates are usually supplied by the banks or financial institutions); name and address of bank (s) or financial institutions and all account numbers; complete P01 — exemption form — ‘PAYE application for the determination of exemption & expenses’.

Refund claims

If at the end of any calendar year a pensioner or senior has overpaid taxes, they may apply in writing for a refund. Where the income includes business profits, including from rent, a Form IT01 is to be completed, instead of the IT05. Documentary evidence to verify claims would also be needed.

The application for exemption of withholding tax or for a tax refund, along with the relevant documents are to be submitted to the Refunds Unit, Tax Administration Jamaica, located at the Donald Sangster Building, 116 East Street, Kingston or it may be dropped off at any Tax Office. Persons are reminded that all income sources will be considered when claims are processed.

The Talking Tax series is prepared by the Communications Unit of Tax Administration Jamaica to guide the public on their rights and obligations. To get additional information on this or any other tax matter, persons may contact 1-888-TAX-HELP (829-4357) or www.jamaicatax.gov.jm