Tax filing rules change a little when you become a senior citizen, and working through them cannot be very clear.
Whether you’re recently retired, unmarried, or married, you’ll need to untangle a complex web of tax documents.
We’re here to help you determine when you’ll need to file a tax return and how to check how much you owe.
When Do Seniors File Taxes?
Before discussing any complex tax returns, you’ll need to know whether you need to file anything first.
Fortunately, it’s broken down into 2 time periods: 2018 and the tax year 2021.
Here’s a brief explanation of these 2 time periods:
- Tax Year 2018 – For any tax years prior to 2018, the threshold amount follows that year’s standard deduction added to the exemption amount you qualify for.
- Tax Year 2021 And After – For tax years 2021 and beyond, you’ll need to file a federal income tax return if you’re 65 years old and earn a gross income of $14,250 or higher.
You won’t have to file a tax return if you earn $14,250 or less in non-exempt income.
REMEMBER: Income thresholds typically increase every tax year to compensate for inflation. This won’t greatly affect your filing if you’re a senior taxpayer receiving Social Security benefits.
At What Age Do Seniors Stop Filing Income Taxes?
If you’re retired but still earning a considerable income, you may need to file income taxes for a long time.
The typical “set age” when you can stop filing income taxes is 65 years old or above. This rule ignores the possibility of you being partially or fully employed.
However, there’s a condition; Social Security benefits must be your only source of income.
Any other income you earn that raises you over the income thresholds for your tax year will require you to file a federal tax return.
What Is the Social Security Tax?
Social Security is designed to help retired or disabled employees earn money and make a living even when they cannot work.
You can begin receiving Social Security payments once you turn 62, but remember that your Social Security benefits may also be taxed.
Keep in mind that if the only income you earn is from Social Security, you don’t have to add it to your tax return.
What Are the Tax Rates for Social Security?
The tax rate for Social Security is 12.4%. Your gross income determines whether you need to pay taxes for your Social Security benefits or not.
This is an even split between employer and employee, so your Social Security contribution will be 6.2%, and your employer’s Social Security contribution will also be 6.2%.
What Are the Social Security Benefits?
Once you’ve retired, you can begin collecting your Social Security benefits. The SSA will give you a portion of your earnings based on your previously-recorded salaries.
If you’ve been making Social Security payments throughout your career, your Social Security benefits will be a portion of your pre-retirement income from your 35 highest-earning years.
Any taxes you pay while currently earning will be used to aid eligible beneficiaries.
When Should Seniors Include Social Security in Their Gross Income?
Up to 85% of your Social Security benefits are taxable, but not the total amount.
Here’s how to calculate how much of your Social Security earnings are taxable:
- First, take any earnings you make that can be considered gross income, whether from salary, dividends, or interest.
- Next, add the tax-exempt interest.
If the final amount exceeds $25,000, you’ll need to include your Social Security benefits in your gross income.
The threshold rises to $32,000 if you’re married and filing a joint return.
How Can Senior Citizens Pay Their Taxes?
It can be difficult to determine whether you owe tax or not since there are various rules regarding filing status and the amount of money you earn to consider.
Fortunately, the IRS offers tax counseling for elderly taxpayers. This isn’t an exclusive Social Security benefit, as any citizen 60 years old or above is eligible.
You can hire a tax professional if you’re uncertain about your current year’s tax rate. They’ll help you determine whether you can stop filing taxes or not for the current year.
As an IRS-provided service, the professional will help you get the maximum refund on your tax bill to help you save money. They’ll also help you if you’re married and filing a joint return.
This service is free, offered nationwide, and is a great benefit for seniors who may need help with their tax returns.
When Should Senior Citizens File a Tax Return?
Even at retirement age, you’ll still typically earn a gross income from investments you’ve made or social security benefits.
If you’re earning from other income sources, including certain tax-exempt income, you’ll have to track your gross income every year and whether you’ll have to file a tax return or not.
Thanks to a new tax law passed in 2017 (The Tax Cuts and Jobs Act), you’ll rely on only your standard deduction when determining whether your income meets or surpasses the filing threshold.
If your only income comes from Social Security benefits, you can likely safely stop filing taxes since no part of your income has a taxable amount.
NOTE: You won’t have to file a federal income tax return if you earn money through investments or assets owned. Passive income is considered unearned and won’t be taxed.
What if You’re Married?
The tax rules change a bit if you’re married or living with your spouse.
For married seniors filing a joint return, if your combined incomes reach $27,800, you’ll need to file a tax return. However, this assumes both you and your spouse are 65.
If your spouse is under 65, the threshold is $26,450.
What Is Combined Gross Income?
You’ll need to abide by a set filing threshold; if your combined gross income surpasses this threshold, you’ll be required to file a tax return.
Here’s a brief breakdown of combined income, whether you’re unmarried or live with your spouse:
Combined income is equal to:
- Any nontaxable interest you’ve earned
- Half of your Social Security benefits
- Your adjusted gross income
Add all three factors above to get your combined income. If the result is greater than $27,800, then you’ll have to file a tax return.
How Tax Credit Works for a Senior Citizen
Elderly or retired taxpayers can reduce their required federal income tax return using tax credits. This service is also available to disabled taxpayers.
To qualify for this reduction, unmarried seniors must be at least 65 years old at the end of the tax year. If you and your spouse are married filing jointly, then your spouse also needs to be 65 years old.
Your credit can be from $3,750 to $7,500.
What Are Tax Credits?
Tax credits are any portion of your gross income that can be directly subtracted from your tax bill.
Credits are more beneficial than deductions because they’re subtracted on a dollar-for-dollar basis from your tax bill instead of just your taxable income.
It may help to think of them like a tax refund.
What if You’re Disabled?
Disabled taxpayers can also claim the tax credit, but you’ll need to meet more conditions if you’re disabled. Disabled senior taxpayers need to be:
- Receiving disability income during the year
- Completely disabled before they became retirement age
- Below their employer’s mandatory retirement age before the current tax year
Frequently Asked Questions (FAQs)
Learn more about how a senior citizen should pay taxes here.
Are Social Security Benefits Taxable for the Disabled?
If you’re a disabled senior taxpayer, you may be wondering if your Social Security income is considered taxable income.
This will mainly depend on your state laws, but any income you earn from Social Security typically won’t be taxed. Apart from your state laws, you also earn gross income.
You’ll have to file a federal income tax return if the money you earn from your Social Security benefits, combined with other sources of income like tax-exempt interest, exceeds $25,000.
If you are married and file taxes jointly with your spouse, your joint income thresholds should not surpass $32,000. Note that this threshold amount may change in a future tax year.
Are There Ways to Reduce Taxes for the Elderly?
You’ll already have a reduction in taxes due to age, but you can further reduce the amount you’ll have to pay for your tax bill if you qualify for an extra tax credit.
Check whether you qualify for these credits to help bring down your tax liability:
- Child and Dependent Care Credit – Seniors who care for a dependent under 12 and earn an income to fund their dependent’s care can avail of this credit.
- Earned Income Tax Credit – If you support a household member between the ages of 19-24 and are permanently disabled or a full-time student, you may be eligible for this credit.
Any salary or earnings you make while eligible for the above credits are considered tax-free and can be refunded on a dollar-for-dollar basis.
If you’re a self-employed senior and qualify for the credits above, you’re still liable to pay a self-employment tax.
What Is Standard Deduction?
As a senior citizen, you’ll be filling out tax forms 1040-SR to determine whether you owe tax or not and by how much. However, there are 2 methods you can use to lower the amount of taxes you’ll need to pay.
If you’ve already determined your adjusted gross income, you can make an itemized deduction by combing through all your earnings for the current tax year.
The second method is the standard deduction, based on your filing status (single, married filing jointly, married filing separately, etc.) This exemption amount can be calculated to lower your tax bill for the year.
REMEMBER: You are not eligible for standard deduction if you’re married, but your spouse uses the itemized deduction if you and your spouse file a separate tax return. Clear this with them first.
Is Income From Investments Considered Taxable Income?
We mentioned “combined gross income” earlier, but this income is only taxable if it was gained from either self-employment or a salary gained while working as an employee.
For example, if you’ve been investing your income into a taxable account and have earned dividends, they’re still considered taxable income.
You won’t stop filing income taxes simply because you’re retired, but since you’ll stop paying for health insurance and Social Security, you can save more money in the long term.
It is not considered taxable if you have earned tax-exempt interest from any government bonds or securities that you hold, despite being a portion of your gross income.
Conclusion
Now that we’ve covered the in-depth definition of your retirement income, hopefully, you have a better idea of when you’ll have to file a tax return and when you can rest easy.
If you’re not a senior taxpayer yet but are approaching retirement age, take this guide as a way to check your filing status and prepare for your eventual golden years.
Always update your filing status every tax year, and find out if you’re eligible for a tax refund or not.
