Do I Have To File Taxes?

older couple filing taxes

Filing taxes can be burdensome, especially considering the complexity of filing a tax return. With tax laws changing almost overnight sometimes, it goes without saying that taxpayers often find themselves midst a tax storm that they do not know how to handle. 

Questions like ‘Do I need to file taxes if I collect Social Security?” “What about the case when I get Disability benefits?” “Do I file a tax return if I am retired?” are very common. Hopefully, this guide will help you figure some basics out and answer commonly asked questions about filing taxes. 

 

Do I Have To File Taxes If I Collect Social Security?

In general, individuals must file taxes if (1) they are unmarried, (2) their gross income is at least $14,050 or (3) are below 65 years of age. However, those that live exclusively on Social Security benefits have no gross income, which means that they do not have to file a federal income tax return. Also, you do not need to include your Social Security benefits in your gross income if your only source of income is your Social Security benefits. 

Things change if you earn additional, not tax-exempt income. In this case, you need to determine whether your annual gross income exceeds the $14,050 threshold. Beginning in 2018, tax exemptions are no longer considered part of your taxable income. So, you must use only your standard deduction. For the 2020 tax year, your Social Security benefits are regarded as gross income if:

  • You are married and file a separate tax return with your spouse. In this case, 85% of your Social Security benefits are regarded as gross income, which means that you may need to file a tax return. 
  • You are married filing jointly, and the sum of 50% of your Social Security plus any tax-exempt interest and other income is higher than $32,000. 
  • Half your Social Security plus other income is higher than $25,000, irrespective of your filing status. 

Note: For senior citizens (over 65 years of age) collecting Social Security benefits, the law is more gentle and flexible as it enables them to reduce the tax amount they must pay on their taxable income. As long as their income is not high (not including Social Security funds), they can lower their tax bill on a dollar-for-dollar basis using a special tax credit called Credit for the elderly or disabled (aka Schedule R).

 

Do I Have To File Taxes If I Did Not Work? 

In general, unemployment checks from the state are taxable. So, it depends on the collected unemployment. The current tax law wants individuals collecting or earning at least $8,000 to file taxes. Another important aspect to consider before answering this question is whether tax was withheld on the unemployment check payment or not. 

It should be noted that unemployment benefits are not free money. In fact, you need to take proper measures today to avoid unwanted surprises in the future when you receive your tax bills the following year. This is because unemployment money is taxable income. So, although you don’t need to pay Medicare or Social Security taxes, you will need to pay state and federal taxes in some jurisdictions while receiving unemployment benefits. 

Of course, some states, such as Virginia, Pennsylvania, Oregon, New Jersey, Montana, or California, waive this particular type of income. This means that if you live in any of these states, your unemployment benefits are tax-free. On the other hand, seven states (so far) do not impose any state income taxes. These include Washington, Texas, South Dakota, Nevada, Florida, and Alaska. 

Tip: The best course of action is to have taxes withheld from your unemployment benefits check, especially if you have earned income this year. The same applies to when you expect to be employed or hired again shortly, which will put you in a higher tax bracket. This, in turn, may make you ineligible for as many credits to offset your earnings. 

How to request the withholding:

  • Fill out form W-4V either online or via the benefits portal (depends on your state).  The Labor Department mentions that you can withhold a flat federal tax rate of 10% of the paid benefits from every payment. 
  • Request a W-4V from your state’s unemployment office if you are already collecting unemployment and then change your withholding. 
  • Take the money out of your checking account, and put it in a little envelope, or put it in a savings account. 

A key factor to bear in mind is your earned income tax credit (EITC) if you are currently unemployed and are worried about how this kind of money will affect your taxes. Depending on your income and whether you have any dependents (and how many), the EITC can provide you  between $538 and $6,660 in tax credits. Those eligible for it can use the tax credit to offset the amount they owe on their tax bill. The 2020 EITC income limit is $15,820 for single individuals or married couples with no children and $21,710 for married couples that file jointly. 

 

Do I Have To File Taxes If I’m Retired?

In short, yes. Your retirement taxes are determined by how much retirement income you draw every year and the sources of your retirement income. And, the kind of money you need to live on is directly related to your taxes. This may sound a paradox, but, in reality, the government never collects taxes on your Social Security money during your working years. The logic is that it simply holds onto it for you. Let’s look into an example to make things a bit clearer:

Suppose you get paid $5,000 every month as an employee. Your employer withholds the 6.2% Social Security tax rate (so, around $310) from your pay every month while contributing that 6.2% on your behalf to the federal government. They pay no tax on that sum, though. Then, when you turn 62 or older, the government gives back the money that went toward Social Security when you file a Social Security retirement benefits claim. Until that moment, nobody has paid taxes for that money.

So, will you owe taxes on your Social Security benefits in the end, and how much? According to the Social Security Administration, one in every four retirees will be called to pay income taxes on their Social Security benefits. For more details, check out the table below: 

Combined* Income Individual Return Married, Separate Return Married, Joint Return
$0-$24,999 No tax
$25,000-$34,000 Up to 50% of Social Security may be taxable
> $34,000 Up to 85% of Social Security may be taxable
$0-$31,999 No tax
$32,000-$44,000 Up to 50% of Social Security may be taxable
> $44,000 Up to 85% of Social Security may be taxable
$0+ Up to 85% of Social Security may be taxable

 

* This refers to half of your Social Security benefits, your nontaxable income, and your adjusted gross interest income, which is your total income minus income adjustments. Adjustments to gross income can be contributions to self-employment retirement plans, alimony paid, student loan interest deduction, and more.

Tip: To avoid paying taxes when you are a retiree, take note of the income you receive. If it is low enough, you won’t get taxed for it. Check the tax bracket into which your taxable income falls after calculating your earned and unearned taxable income. This will help determine whether you will need to pay income taxes or not. Your retirement tax bracket determines the exact way your taxable income is determined when you are in your working/productive years. As soon as you add up your taxable income sources, subtract your itemized or standard deduction, and apply any tax credits you may qualify for. Then form 1040SR or 1040

Below is a table showing the standard deduction for taxpayers over 65 years of age for the 2020 tax year. 

Filing Status Standard Deduction Senior Bonus Total Deduction
Head of household $18,650 $1,650 $20,300
Married filing jointly  $24,800 $1,300 per senior spouse $26,100 
Married filing separately $12,400 $1,300 $13,700
Single $12,400 $1,650 $14,050

 

 

Do I Have To File Taxes If I Collect Disability? 

Again, it depends on the income you receive and whether your spouse also gets an income (or not). If you are single and your Social Security Disability benefits are your sole income source, you don’t need to file taxes. For total incomes that exceed $25,000, it is paramount (and required by law) to file a federal tax return as an individual. The same applies to joint filers if their total combined income is more than $32,000. 

However, note that you will NOT be asked to pay taxes on the entire sum you receive from Social Security Disability if you fall within any of the brackets mentioned above. You usually need to file a federal tax return in the following situations:

    • You earn between $25,000-$34,000 as an individual – You might pay income tax on 50% of the sum you received from the Social Security Administration. 
    • You earn >$34,000 as an individual – You will probably need to pay taxes up to 85% of your SSD (Social Security Disability) benefits. 
    • You file jointly with your spouse and have a combined income between $32,000-$44,000 – You might have to pay taxes on 50% of your SSD benefits. The sum goes up to 85% of your SSD benefits if your income is over $44,000 (always referring to your combined sum). 
  • You also have a pension.
  • You collect short-term disability that is being provided by your employer. 

In general, though, if you have paid for your own disability policy, you won’t need to file a tax return. 

 

Do I Have To File Taxes On A Summer Job?

The majority of taxpayers are allowed to earn a specific amount of income every year without having to file a federal tax return or pay taxes. But, if you are obliged by law to file a tax return, it is critical that you have your earned income reported by your summer employer on a W-2

Full-time students may not need to file a return if they work for just a couple of months in the summertime. Nevertheless, if you qualify for a tax refund for taxes withheld from your paychecks, it is advised to file a return so you can claim that refund. Take note that if you show as a dependent on your parents’ tax return, though, you will have to file a tax return if you received more than $1,100 of unearned income (i.e., dividends and other non-employment income), irrespective of other earnings you may have. The same applies if your total earnings are higher than the standard deduction set for dependents.

 

Do I Have To File Taxes If I’m Married But Don’t Work?

You can choose to file separately or jointly on your income tax returns, with the first option being the most beneficial for you, most of the time, at least. This is because the IRS provides larger standard deductions to joint filers every year, which enables them to deduct more money from their income than those filing separately. For example, married couples filing jointly receive a $24,800 deduction while those filing separately only receive a standard deduction of $12,400. 

Plus, you are eligible for more tax credits, such as the Earned Income Tax Credit and the Child and Dependent Care Tax Credit. On top of that, joint filers earn a larger amount of income due to the higher income threshold for specific deductions and taxes while they may also qualify for certain tax breaks. 

There are, of course, some rare cases when filing separately is more preferred than filing jointly. You can contact us and give us the details of your case. Our tax relief professionals will then suggest the filing status that gives you the biggest tax savings

Ozzie Gomez is a Senior Tax Settlement Agent and the owner of Innovative Tax Relief which holds business licenses in Tax Resolution, Tax Audit Representation and Tax Preparation.  With almost 10 years of experience in the tax resolution industry, he has personally helped more than 4,000 individuals and businesses resolve their tax issues.

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