Federal Income Tax Return Filing Requirements for Retirees

Do retirees have to file a federal income tax return? You might think that the days spent filing an income tax return each year is behind you once you are retired. However, being retired doesn’t necessarily get you out of filing a return with the IRS. In fact, you may want to file even if you are not required to file a tax return for a given year.

Many factors go into your need to file a return with the Federal government, for example:

• Social Security Income – If your only source of income is Social Security, it means you wouldn’t need to file a return under normal circumstances. However, you may still want to file in case you are eligible for a tax credit that would lead to a refund.
• Earned Income – If you received income during retirement you likely need to file a tax return. That income can come from a part-time job, or being self-employed and earning more than $400 in the year (source IRS).
• Other Income – Withdrawals from tax-deferred retirement plans, such as a Traditional IRA or a 401(k), are taxable and can also trigger the need to file a return. The same is true when you trigger a capital gain event, such as selling an asset for a profit.

Many things might trigger the need to file a return. It just depends on your situation.

Are My Social Security Benefits Taxed?

A common question among individuals about to retire is if their social security benefits will be taxed when they receive them. Under situations where your only income is Social Security, you typically do not pay income tax on the benefits. However, if you have earned income or other income during the year while receiving Social Security benefits, you might be taxed.

According to Social Security:

Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return).

Combined Income

The key number to understand is your combined income. This number is defined as your adjusted gross income, plus non-taxable interest, plus 50% of your Social Security benefits.

Combine Income = Adjusted Gross Income + Non-Taxable Interest + 50% of Social Security Benefits

 If your combined income is more than the limit set by the IRS, you’ll have to pay income tax on your social security benefits.

For Individual Taxpayer

• If your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits.
• If your combined income is more than $34,000, up to 85% of your benefits may be taxable.

For Joint Return

• If your combined income is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits.
• If your combined income is more than $44,000, up to 85% of your benefits may be taxable.

Filing a Return During Retirement

Trying to figure out exactly how much you owe is fairly complicated. The best solution is to either seek help from a tax advisor or use one of the many free online tax software. Here are a few that could help you:

• H&R Block Free Online Tax Filing
• TaxAct Free Federal Online Tax Filing
• Credit Karma Tax

If your finances is straightforward, you can use one of these services to verify your filing requirement and if you owe money, or due a refund.

If your finances is more complicated than that, it is like that you need to file a tax return and it would be wise to spend some time with a tax professional. It is a small price to pay to know you are avoiding the wrath of the IRS you would incur by not filing.

Kevin Mulligan

Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He’s building a personal finance freelance writing career and has written for RothIRA.com, Discover Bank, and many others.