Many recipients of Social Security benefits may mistakenly assume they’re exempt from filing tax returns, but experts caution that they could be forfeiting potential refunds. Despite retirement and receiving monthly Social Security payments, which averaged $1,760.30 in 2024, many seniors may still be obligated to file taxes based on their income.
“The importance of filing taxes cannot be overstated, especially since many are required to pay quarterly taxes,” emphasized Kevin Thompson, a certified financial planner and the founder and CEO of 9i Capital Group. “Avoiding interest and penalties is crucial, so maintaining good standing with the IRS is essential.”
Part-time employment and a modest monthly Social Security income
Thompson also highlighted the significance of tax planning, particularly concerning Roth retirement account conversions. “Filing taxes not only generates a 1040 form but also enables us to implement tax planning strategies for clients and future beneficiaries, facilitating legacy planning.” However, many Americans earning below the federal minimum senior income tax threshold of $15,700 might assume there’s no advantage to filing taxes.
If federal income tax was deducted from your Social Security benefits or other income sources, filing a tax return is the sole method to reclaim overpaid taxes.
Some senior citizens who receive Social Security may also be eligible for tax credits, such as the Earned Income Tax Credit or Additional Child Tax Credit, which can only be accessed by filing a tax return.
Additionally, for seniors enrolled in Medicare, the income reported on their tax return influences the premiums they pay for Medicare’s Part B and Part D coverage, as noted by Hellman. “Failure to file can complicate these calculations,” Hellman explained, highlighting that certain states tax Social Security benefits differently from the federal government.
Given the ever-changing U.S. tax code, it’s challenging for Americans to stay abreast of all their tax obligations and opportunities annually.
“Not everyone has access to reliable tax guidance. While free resources are available, they may not effectively reach all demographics,” Hellman remarked. “Some beneficiaries may mistakenly believe they don’t need to file taxes if Social Security is their sole income source, overlooking potential benefits.” Low-income individuals can receive assistance with tax filing through the IRS’s Volunteer Income Tax Assistance program, which is free. The IRS also offers the Tax Counseling for the Elderly program, also free of charge. While certified public accountants can assist seniors with this task, their fees can be substantial.