Chris Scott
Contributing Writer at Tally
March 9, 2022
As you approach retirement, you may ask, "What age can you stop filing income taxes?" The answer to this question has more to do with earnings and less with age.
In this article, we'll cover:
If and when you can expect to stop filing income taxes
How your retirement income may impact you if you owe taxes
How to lower your tax liability
With this knowledge, you can potentially better align yourself for retirement.
What age can you stop filing income taxes?
There’s no set age at which the IRS says you no longer have to file income tax returns or pay income taxes, and it’s not as though you reach an age that absolves you of your tax bill.
Income thresholds determine when you’re required to file, regardless of your age. (We'll touch on that more below.) Additionally, there are stipulations surrounding Social Security benefits. If your only income is from Social Security payments, you may not have to file income taxes.
The earliest you can start collecting Social Security is 62. So, that would hypothetically be the age at which your filing status changes, and you no longer have to submit a return to the IRS. But again, this is based on taxable income and has less to do with age.
Also, as a disclaimer, you should be mindful of your state tax laws, as well. State tax laws can vary from one place to the other. You may be required to file taxes in a state if you:
Own a home in that location
Rent a residence in that location for a certain amount of time
Earn income in that state during the tax year
Speaking with a tax professional, like a CPA, can help you understand your situation and what you need to be mindful of when filing taxes.
What are the income thresholds for the IRS?
There are income thresholds that define who needs to file a tax return with the IRS. If you have little or no income, you may not have to file taxes. The income thresholds are based on gross income.
Gross income refers to "all income you received in the form of money, goods, property, and services that isn't exempt from tax.”
If you are older than 65 years of age, based on the IRS rules for the 2021 tax year, you must file a federal income tax return in the following circ*mstances:
Your filing status is single, and your gross income was at least $14,250
Your filing status is head of household, and your gross income was at least $20,500
You're a married couple filing jointly, one of you is older than 65, and your combined gross income was at least $26,450
You're married filing a joint return, both of you are older than 65, and your combined gross income was at least $27,800
You're married filing separately, and your gross income was $5
You're a qualifying widow, and you earned at least $26,450
For tax-filing purposes, you’re considered age 65 if you turn 65 at the end of your tax year. For the 2021 tax year, anyone born before January 2, 1957, is considered 65 or older.
Remember, income thresholds are subject to change by the IRS each tax year, so it’s good to double-check them before filing each tax season.
How do Social Security benefits impact filing requirements?
Now that you know your gross income is a primary factor in whether you have to file taxes, you may be wondering how Social Security benefits factor in.
In some cases, you won’t need to pay taxes on your Social Security, but it all comes down to your combined income.
Combined income includes:
Your adjusted gross income
Half of your Social Security income
Your tax-exempt interest
You’ll need to pay taxes if your combined income is greater than $25,000 as an individual or greater than $32,000 if married filing jointly. However, you won’t pay taxes on more than 85% of your Social Security benefits. How much of your Social Security income is subject to tax will depend on your combined income.
If you’re filing as an individual and your income is between $25,000 and $34,000, 50% of your benefits are taxed0. If your income exceeds $34,000, 85% of your benefits are taxed.
If you’re filing a joint return, 50% of your benefits are taxed if your income is between $32,000 and $44,000. If your income exceeds $44,000, 85% of your benefits are taxed.
For each year you receive Social Security, you should receive a Form SSA-1099 from the Social Security Administration. This form is for tax-filing purposes and outlines how much you received in Social Security benefits for the year.
Do retirement account withdrawals impact filing requirements?
Another thing to consider when it comes to your filing requirements is your retirement benefits. Depending on the type of retirement account you have, you may need to take minimum required distributions. You may also choose to make other withdrawals from the account during the year.
Whether your minimum required distributions and withdrawals are taxable and count as gross income depends on the type of account you have. If you have a Roth 401(k) or Roth IRA, your withdrawals are likely tax-free and don’t count toward your gross income. If you have a traditional 401(k) or traditional IRA, your withdrawals will count toward your gross income and may increase your tax liability.
These are general statements, and each person’s financial situation is different. For instance, Roth income is tax-free, assuming you made qualified distributions. Working with a trusted tax advisor can help you better understand and prepare for taxes in retirement.
Are there ways to reduce your tax liability?
If you can’t stop filing your taxes yet, look into available credits to help reduce your overall tax burden. For instance, a tax credit for filers designed specifically for senior citizens is known as the Credit for the Elderly or the Disabled. This tax credit is in addition to the standard deduction and ranges between $3,750 and $7,500.
Tax credits like this one could potentially bump you into a lower tax bracket or even yield a tax refund.
The preparation for retirement can start today
There is no magic age at which you're allowed to stop filing taxes with the IRS. However, once you’re over the age of 65, your income thresholds that determine if you’re required to file will change.
You can work with a trusted financial advisor to better understand how much you’re going to owe in taxes as you get older based on your sources of income.
If you're looking for more financial management advice, be sure to sign up for Tally's† email newsletter.
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As a financial expert with extensive knowledge in retirement planning and tax regulations, I've delved into the intricacies of the article written by Chris Scott, a Contributing Writer at Tally, published on March 9, 2022. Let's break down the key concepts covered in the article and provide additional insights:
Concepts Covered in the Article:
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Age and Tax Filing:
- The article emphasizes that there's no specific age at which individuals are exempt from filing income tax returns. Instead, it depends on income thresholds.
- Filing status changes can occur based on taxable income, not solely on age.
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Social Security and Taxation:
- The article explains that if your sole income is from Social Security payments, you may not be required to file income taxes.
- The impact of Social Security benefits on filing requirements is determined by your combined income, which includes adjusted gross income, half of Social Security income, and tax-exempt interest.
- Tax rates on Social Security benefits vary based on your combined income.
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Income Thresholds for Tax Filing:
- The IRS sets income thresholds to determine who must file a tax return.
- Specific income thresholds are outlined for different filing statuses and age groups.
- Gross income, encompassing money, goods, property, and services, is a key factor in these thresholds.
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State Tax Laws:
- The article emphasizes the importance of considering state tax laws, which can vary.
- Owning a home, renting in a state, or earning income in a state may trigger tax filing requirements.
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Retirement Account Withdrawals:
- Retirement benefits, including minimum required distributions and withdrawals, can impact filing requirements.
- The tax treatment of withdrawals depends on the type of retirement account, with Roth accounts often providing tax-free withdrawals.
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Ways to Reduce Tax Liability:
- The article suggests exploring available tax credits to reduce the overall tax burden.
- Specifically, it mentions the Credit for the Elderly or the Disabled, designed for senior citizens, as a potential avenue for tax relief.
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Consulting a Tax Professional:
- Throughout the article, there's a recurring recommendation to consult with a tax professional, such as a CPA, to understand individual tax situations and state-specific requirements.
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Continuous Monitoring and Preparation:
- The article stresses the dynamic nature of income thresholds and tax regulations, emphasizing the need for continuous monitoring and preparation for taxes in retirement.
Additional Insights:
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Dynamic Tax Regulations:
- Tax laws change annually, and the article wisely advises readers to double-check income thresholds each tax season.
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Individual Variability:
- The article acknowledges that individual financial situations differ, and general statements about taxes may not apply universally.
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Financial Advisor Guidance:
- Working with a trusted financial advisor is recommended to gain personalized insights into tax obligations based on individual income sources.
In summary, the article provides a comprehensive overview of the factors influencing tax filing in retirement, emphasizing the nuanced relationship between age, income, and tax regulations. The inclusion of state-specific considerations and the recommendation to seek professional advice enhances the article's credibility and usefulness for individuals planning for retirement.
