Do Seniors Have to File Taxes?
Tax time can evolve and look different as you age.
Once you exit the workforce, you will no longer owe payroll taxes — but you may still be subject to income taxes at the federal or state level.
Some people don’t need to file taxes each year in retirement.
Others may need to navigate IRS rules related to retirement account withdrawals, annuities or pension payments.
- You’re unmarried
- You’re at least 65 years or older, and
- Your gross income is $14,050 or more.
Here are some additional scenarios older adults should be aware of around tax time.
When Social Security Is Your Only Income
If this is your only income, your gross income equals zero, so there’s no need to file a federal income tax return.
But if you earn any other income — such as from a part-time job or retirement account distributions — some of your Social Security benefits may be taxable.
If half of your yearly Social Security benefits plus all other income exceeds $25,000, or $32,000 for married couples filing jointly, then a portion of your Social Security benefits are included in gross income.
Working After Retirement and Combined Income
If you already collect Social Security but are still working after retirement and earning income, a portion of your benefits may be taxed.
Whether you owe income tax on your benefits will depend on how much overall retirement income you and your spouse receive, and whether you file a joint or separate tax returns.
A formula, known as combined income, determines the amount of your Social Security check that’s taxable.
Typically, the higher your total income amount, the greater the taxable part of your benefits.
- Adjusted gross income (the amount you get paid at work — before taxes are taken out — minus adjustments, such as contributions to certain retirement accounts, HSAs and other applicable deductions)
- Nontaxable interest
- One-half of your yearly Social Security benefit
If your combined income number is less than $25,000 for an individual, then your Social Security benefits aren’t taxable.
However, for individuals with a combined income between $25,000 and $34,000, up to 50 percent of your benefits may be taxable.
If your combined income exceeds $34,000, up to 85 percent of your benefits are taxable.
Keep in mind that there is no tax break at all on Social Security benefits if you’re married and file separate returns.
IRA and 401(k) Withdrawals
Most people will pay some tax when they withdraw money from their retirement accounts.
Distributions from traditional 401(k) and IRA accounts are taxed on an incremental basis.
You can begin withdrawing money from your traditional 401(k) or IRA without penalty at age 59.5.
You are forced to start taking required minimum distributions from your traditional retirement accounts when you’re 72 and retired.
Withdrawals from Roth IRA and Roth 401(k) plans are different. Distributions are typically tax-free in retirement as long as the account is at least five years old.
An annuity is taxed when you withdraw money from the account or receive regular payments.
Annuities purchased through a traditional 401(k) or IRA are considered qualified annuities. Payments from a qualified annuity are fully taxable as ordinary income.
One exception is if you purchased an annuity inside a Roth IRA or Roth 401(k) plan. Because the annuity was purchased with after-tax dollars, payments you receive in retirement are tax-free.
If you purchased an annuity on your own with after-tax dollars, then typically only the earnings or interest is taxed.
Annuity taxation can be complex, but to summarize, if you buy an annuity with pretax money, the entire balance is taxable as income. If you used after-tax funds to purchase the annuity, then only the earnings are taxable.
Just like before retirement, you’ll owe taxes on investment dividends, interest and capital gains after you leave the workforce.
Investment income is reported on a 1099 tax form each year.
Interest on investments in taxable brokerage accounts is taxed at your regular income tax rate. So are short-term capital gains, or investments sold a year or less after purchase.
But other investment income — including your long-term capital gains and qualifying dividends — are taxed at the capital gains rate. This ranges between 0 percent and 20 percent, depending on your tax bracket.
|Long-Term Capital Gains Tax Rate||Your Income|
|0%||$0 to $40,000|
|15%||$40,001 to $441,450|
|20%||$441,451 or more|
You must pay income tax on pension payments for the year you received the money.
According to the Financial Industry Regulatory Authority, your former employer will withhold some taxes from your pension payments, so at least some of what you owe will already be prepaid.
Retirees with high amounts of monthly pension income will likely pay taxes on 85 percent of their Social Security benefits.
Make sure to check the pension taxation rules in your state. Some states don’t tax pension payments, but others do.
You can also use this tool from the IRS to determine if your pension payment, annuity from an employer-sponsored retirement plan or nonqualified annuity is taxable.
Calculating Your Tax Rate in Retirement
The United States uses a progressive tax rate that consists of seven tax brackets.
The brackets apply only to the amount of taxable income that remains after subtracting any deductions and exemptions you’re entitled to claim.
Here’s an example.
Let’s assume that you’re a single filer. You have $10,000 in Social Security income, $15,000 from a part-time job and you expect to withdraw $20,000 from your 401(k).
Christie Tornikoski, a tax accountant at Spire Financial Consulting LLC in New Hampshire, said the first step is to calculate how much of your Social Security benefit is taxable.
Remember, up to 85 percent of your Social Security income may be taxable, but depending on your overall income, you may not owe taxes on it.
You can figure this out by adding up your other source of income and using 50 percent of your Social Security benefits in your calculation.
If the result is $34,000 — or $44,000 for married couples filing jointly — then a portion of the benefit is taxable.
Your total in this first calculation is $40,000, and you use the Social Security Benefits worksheet to determine the actual amount taxable.
In this example, $8,500 out of $10,000, or 85 percent, of your Social Security benefits are taxable.
Now you can calculate the adjusted gross income by adding the $15,000 from your part-time job, $20,000 from retirement accounts and $8,500 in taxable Social Security benefits, for a total of $43,500.
But that’s not your final taxable income. The IRS lets you chip away at this figure with either the standard deduction or itemizing deductions.
If you take the standard deduction — and most people do — your taxable income decreases by $12,400 if you’re a single filer and by $24,800 for married couples filing jointly.
Being a senior comes with perks — including at tax time. Everyone 65 and older automatically qualifies for a $1,650 boost to the standard deduction. If you’re legally blind or permanently disabled, you qualify for more.
After deductions, your taxable income is $29,450 as a single filer.
From here, you can figure out what tax bracket you fall into.
|Tax Rate||Taxable Income bracket||Tax Owed|
|10%||$0 to $9,875||10% of taxable income|
|12%||$9,876 to $40,125||$987.50 plus 12% of the amount over $9,875|
|22%||$40,126 to $85,525||$4,617.50 plus 22% of the amount over $40,125|
|24%||$85,526 to $163,300||$14,605.50 plus 24% of the amount over $85,525|
|32%||$163,301 to $207,350||$33,271.50 plus 32% of the amount over $163,300|
|35%||$207,351 to $518,400||$47,367.50 plus 35% of the amount over $207,350|
|37%||$518,401 or more||$156,235 plus 37% of the amount over $518,400|
|Tax Rate||Taxable Income bracket||Tax Owed|
|10%||$0 to $19,750||10% of taxable income|
|12%||$19,751 to $80,250||$1,975 plus 12% of the amount over $19,750|
|22%||$80,251 to $171,050||$9,235 plus 22% of the amount over $80,250|
|24%||$171,051 to $326,600||$29,211 plus 24% of the amount over $171,050|
|32%||$326,601 to $414,700||$66,543 plus 32% of the amount over $326,600|
|35%||$414,701 to $622,050||$94,735 plus 35% of the amount over $414,700|
|37%||$622,051 or more||$167,307.50 plus 37% of the amount over $622,050|
The IRS taxes the wealthy more, and tax rates gradually increase across the seven tiers.
“It’s incremental,” Tornikoski told RetireGuide.com. “As the money goes up, a higher tax rate is applied.”
Although your taxable income falls into the 12 percent tax bracket, the entire $29,450 isn’t taxed at 12 percent.
Rather, you would pay 10 percent of $9,875 in the first tax bracket, then 12 percent on the remaining taxable income in the second tax bracket.
This brings your 2020 tax bill to $3,340.
“However, what you actually owe the IRS may be much lower if you requested your part-time employer or the Social Security Administration to withhold earnings,” Tornikoski said.
Tax Help for Seniors from the IRS
Navigating your taxes after retirement can be challenging. Filing a return can take hours and tax laws are always changing.
Luckily, several free resources across the country are available to help.
If you need assistance navigating complex tax rules, you can take advantage of free preparation and advice from the IRS, the AARP Foundation and other organizations.
Tax Counseling for the Elderly (TCE)
The Tax Counseling for the Elderly, or TCE, program from the IRS provides free tax assistance specifically tailored to people age 60 and older.
Since 1978, TCE has offered free assistance and basic income tax return preparation to qualified seniors across the country.
While the program is operated by the IRS, community and nonprofit organizations across the country administer the program at the local level.
The IRS enters into agreements with private or nongovernmental nonprofit groups — like the United Way and the Area Agency on Aging — which provide training and technical assistance to IRS-certified volunteers.
These partner agencies are responsible for publicity, recruitment, training, site selection and management of volunteers.
No application is required to receive tax help at a TCE site, but most locations require an appointment.
Volunteer Income Tax Assistance (VITA)
Volunteer Income Tax Assistance, or VITA, is another federal grant program that offers free tax help from IRS-certified volunteers.
This program shares similarities with TCE but offers assistance to a wider group of people.
The program is generally available to taxpayers who make $57,000 or less a year, people with disabilities and taxpayers who speak limited English.
Help is provided at community and neighborhood centers, libraries, schools, shopping malls and other accessible locations.
- Wages from your W-2
- State tax refunds
- Interest income, dividends and capital gains/losses
- Unemployment benefits
- IRA distributions
- Pension income
- Social Security benefits
- Home sale proceeds
- Self-employment income
- Health savings accounts and health insurance statements
- Education credits
- Child Tax Credit
- Earned income credit
VITA and TCE help millions of Americans file taxes each year. In 2019, more than 80,000 volunteers prepared 3.5 million federal tax returns, according to CNBC.
Due to COVID-19, some VITA sites are closed for in-person services. Several may offer drop-off or virtual tax services instead. Others are using a hybrid approach of socially distanced in-person and online help.
Locations that list “Self-Prep” in the site listing give you the option to prepare your own basic federal and state tax return for free using web-based software with the help of an IRS-certified volunteer.
Call your local VITA program or use the online locator tool to learn how services may be different in 2021.
The IRS also offers a publication on what to expect during your VITA or TCE appointment as well as documents to bring with you.
IRS Free File
About 70 percent of taxpayers qualify to file free federal tax returns online through the IRS Free File system.
This public-private partnership connects single filers and families with an annual income of $72,000 or less with free filing software from partners such as TaxAct and TurboTax.
You can use the IRS Free File Online Lookup Tool to refine the offers you may qualify for, or you can select the “Browse All Offers” option.
Once you make a selection, you will be redirected to the tax provider’s website.
AARP Tax Aide: Free Tax Preparation for Seniors
AARP Tax Aide is a free national program that provides in-person and virtual tax assistance from Feb 12 through April 15. Each site is staffed by IRS-certified volunteers.
The program caters to taxpayers who are age 50 or older and those with low to moderate incomes.
However, anyone can make an appointment. You don’t have to be an AARP member to get free tax help.
- Interest, dividends and capital gains/losses
- Unemployment compensation
- Pensions and other retirement income
- Social Security benefits
- Limited self-employment income
- Itemized deductions
- Most tax credits, including the earned income tax credit, education credits, credits for children and other dependents, premium tax credit and retirement savings credit
- Repayment of first-time homebuyer credit
- Estimated tax payments
- Health savings accounts (HSAs)
- Amendments to filed returns.
- Tax returns for the last three years.
In addition to assisting you with your federal return, AARP tax experts can help you prepare state tax returns for the state in which the site is located.
However, AARP Tax Aide volunteers can’t help with every tax issue.
- Complicated self-employment income that involves employees or extensive losses
- Complex capital gains and losses, such as futures or options
- Rental income, except land-only rentals
- Farm income or expenses
- Some itemized deductions
- Alternative minimum tax, additional Medicare tax or net investment income tax
This year, you must schedule an appointment to get assistance at a Tax Aide site.
Additional Tax Help and Resources for Seniors
While AARP and the IRS offer many free tax assistance sites across the country, there are other options out there if you need help this year.
- MilTax Filing Service
- The Department of Defense provides free e-filing software known as MilTax to active-duty military personnel, as well as their spouses, dependent children and survivors. Retired and honorably discharged veterans are also eligible to use MilTax up to 180 days after their separation. MilTax is self-paced and allows you to complete and electronically file your federal taxes and up to three state tax forms. Check the Military OneSource site for more information.
- Do-It-Yourself Online Options
- Many major tax software companies offer free tax preparation software for people with simple tax returns (for example, you don’t want to itemize). These packages may vary from what’s available through IRS Free File. State tax returns are usually included. Check H&R Block’s free online tax filing, TaxAct, Intuit’s TurboTax and TaxSlayer Simply Free.
- Local Tax Help
- If you have a very complex tax situation or if you’re a high-income earner, you may need to pay for tax help. Many accountants and tax professionals offer free client consultations. Some also offer senior discounts, although the markdown may be modest.
Expert Tips for Seniors Filing Taxes
Brad Martin is the Volunteer Income Tax Assistance (VITA) Program Coordinator for United Way of Southwest Alabama, where he operates three VITA sites. He has over a decade of tax preparation experience and has helped train hundreds of IRS-certified volunteers.
Every year start a folder with tax information as it arrives. Social Security statements, retirement forms and brokerage statements arrive at different times, and throughout the year you should be tracking deductible expenses such as gifts to charity and medical bills. Keeping everything in one tax folder makes it easy to find what you need come tax time.
A common misconception is that Social Security benefits aren't taxable. In many cases they aren't — but depending on how much additional income you receive during the year, a portion of those benefits can be taxable income.
If you are married, filing a joint return with your spouse will often result in a lower tax bill than filing separate returns. This is because in many cases, filing separately means that 85 percent of your Social Security benefits are taxable, while filing jointly could actually result in paying taxes on less of that amount, or even none of it at all.
Does your state require a tax return? Not all states have state income tax. Is your retirement income taxable to your state? Are there special credits in your state that might require additional documentation to be kept? Can you itemize your deductions on your state return even if you don't itemize on your federal return? A good tax advisor can help you understand the important bits of information that are state specific.
If you usually get a refund, but this year you have a balance due, or if your refund is much higher than it was last year, don't be afraid to ask why the change happened. There may be a perfectly good explanation, but you deserve to understand your return. After all, whether you prepare your return or use the services of a tax preparer, you sign a statement that says under penalty of perjury you are responsible for the information on that return. So understand your return before you file.
If you know you're going to do something out of the norm with your finances, such as withdrawing a large sum of money from a retirement account or taking on a part-time job, consider how that will affect your tax situation. The increased income could cause the taxable amount of your Social Security benefits to increase, and you might want to withhold extra taxes to prepare for the change. Similarly, if you have emptied an IRA and will no longer receive income from it, you may be able to decrease the amount of withholding you've had from your Social Security benefits or your pension.
Whether you file your own return or someone files it for you, you should always have a copy of your return at the end of the experience. You may need it if you later have to file an amended return or if the IRS questions any of the information on it. And if a preparer will not give you a copy of your return, consider that a huge red flag. Do not consent to having it filed and walk away. An unscrupulous preparer's unwillingness to provide you with a return raises concerns that he or she may alter the return after you leave, usually to increase the refund and pocket the difference.
More Resources for Preparing and Filing Your Taxes
- IRS Publication 554: Tax Guide for Seniors
- This comprehensive guide from the IRS includes a “What’s New” section that describes the latest tax changes impacting seniors for the 2020 filing year. It also provides an overview of tax deductions and credits available to adults 65 and older, as well as an FAQ on topics related to Social Security benefits, home sales, retirement accounts and more.
- Form 1040-SR, U.S. Tax Return for Seniors
- In 2020, the IRS created a new tax form, Form 1040-SR, with seniors in mind. It features larger print and a standard deduction chart. It also allows income reporting from other sources common to older Americans, including investment income, Social Security benefits and distributions from qualified retirement plans and annuities.
- Get Help with Your Taxes from USA.gov
- This website from the U.S. government provides information and links to the IRS VITA and TCE programs, as well as links to helpful free tax-filing information such as the IRS resource center and interactive tax tools.
20 Cited Research Articles
- AARP Foundation. (2021, February 13). What services does Tax-Aide provide? Retrieved from https://taxaideqa.aarp.org/hc/en-us/articles/360012461353-What-services-does-Tax-Aide-provide-
- Adler, S. E. (2021, February 12). Find Free Tax Prep Help Near You. Retrieved from https://www.aarp.org/money/taxes/info-2018/aarp-tax-help-fd.html
- Reinicke, C. (2021, February 5). Millions of Americans could miss out on free tax help due to Covid. Retrieved from https://www.cnbc.com/2021/02/05/millions-of-americans-could-miss-out-on-free-tax-filing-help-this-year.html
- Internal Revenue Service. (2021, January 25). Topic No. 410 Pensions and Annuities. Retrieved from https://www.irs.gov/taxtopics/tc410
- Internal Revenue Service. (2021, January 7). Tax Information for Seniors & Retirees. Retrieved from https://www.irs.gov/individuals/seniors-retirees
- Internal Revenue Service. (2021, January 5). Is My Pension or Annuity Payment Taxable? Retrieved from https://www.irs.gov/help/ita/is-my-pension-or-annuity-payment-taxable
- Internal Revenue Service. (2020, October 23). Are My Social Security or Railroad Retirement Tier I Benefits Taxable? Retrieved from https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable
- Internal Revenue Service. (2020, October 21). IRS announces 2021 Tax Counseling for the Elderly and Volunteer Income Tax Assistance Program Grants. Retrieved from https://www.irs.gov/newsroom/irs-announces-2021-tax-counseling-for-the-elderly-and-volunteer-income-tax-assistance-program-grants
- Internal Revenue Service. (2020, October 21). Tax Counseling for the Elderly. Retrieved from https://www.irs.gov/individuals/tax-counseling-for-the-elderly
- Internal Revenue Service. (2020, July 31). What to Bring to Your Local VITA or TCE Site. Retrieved from https://www.irs.gov/individuals/checklist-for-free-tax-return-preparation
- Saverino, S. (2020, July 1). Supporting VITA Supports Families In COVID-19. Retrieved from https://www.unitedway.org/blog/supporting-vita-supports-families-in-covid-19
- Internal Revenue Service. (2020, January 30). New Form 1040-SR, alternative filing option available for seniors. Retrieved from https://www.irs.gov/newsroom/new-form-1040-sr-alternative-filing-option-available-for-seniors
- Phillips Erb, K. (2019, September 24). IRS Releases Updated Version Of Tax Form Just For Seniors. Retrieved from https://www.forbes.com/sites/kellyphillipserb/2019/09/24/irs-releases-updated-version-of-tax-form-just-for-seniors/?sh=10b7d7602e52
- Benefits.gov. (n.d.). Tax Counseling for the Elderly. Retrieved from https://www.benefits.gov/benefit/722
- Financial Industry Regulatory Authority. (n.d.). Taxation of Retirement Income. Retrieved from https://www.finra.org/investors/learn-to-invest/types-investments/retirement/managing-retirement-income/taxation-retirement-income
- Internal Revenue Service. (n.d.). IRS Certified Volunteers Providing Free Tax Preparation. Retrieved from https://www.irs.gov/pub/irs-pdf/p3676bsp.pdf
- Internal Revenue Service. (n.d.). IRS Free File Online Options. Retrieved from https://apps.irs.gov/app/freeFile/
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- Military OneSource. (n.d.). Volunteer Income Tax Assistance Program. Retrieved from https://www.militaryonesource.mil/financial-legal/tax-resource-center/preparing-filing-and-refunds/volunteer-income-tax-assistance-program/
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