Taxes are a nonnegotiable aspect of life for most people. You may wonder if you’ll ever be able to stop filing tax returns. Many older adults may continue to pay taxes well into retirement, but not all seniors have to file taxes. Here, we provide information about who must file a federal income tax return for the 2023 tax year, which will be due by April 15, 2024. Note that you should always consult a certified public accountant or tax adviser before making tax decisions.
How do I know if I have to file a federal tax return?
Not everyone needs to file taxes. Those whose income is below a certain amount for the year do not have to file. According to the Internal Revenue Service (IRS), these income thresholds apply to taxpayers, which can also be found below.
| Filing status | Age | Minimum income |
| Single | Under 65 | $12,950 |
| Single | Over 65 | $14,700 |
| Head of household | Under 65 | $19,400 |
| Head of household | Over 65 | $21,150 |
| Married filing jointly | Under 65 (both spouses) | $25,900 |
| Married filing jointly | 65 or older (one spouse) | $27,300 |
| Married filing jointly | Over 65 (both spouses) | $28,700 |
| Married filing separately | Any age | $5.00 |
| Qualifying surviving spouse | Under 65 | $25,900 |
| Qualifying surviving spouse | 65 and older | $27,300 |
What kind of retirement income is taxable?
Any increase in wealth is considered income, including any money you earn or make off investments. Some or all payments you receive from pensions or retirement accounts may be taxable. You may be responsible for making a partial tax payment on payments you received if you contributed to your pension or retirement account. If you are the surviving spouse or a beneficiary of a pension or other retirement account, you will generally need to pay income taxes on the payout you receive. You can talk with a financial adviser to find out whether you need to pay taxes, depending on the type of accounts you have.
You may be required to pay the full tax obligation on payments from your retirement accounts if you did not make any after-tax contributions, your employer didn’t withhold after-tax contributions from your salary, or you collected all your after-tax contributions tax-free the previous year.
Do I need to pay taxes on life insurance payouts for cash?
The short answer is yes. If you cash out a life insurance policy, the IRS considers it an increase in wealth and adds it to the total amount you owe in federal income taxes.
You will pay income taxes on the proceeds from the policy that are greater than the cost of the life insurance policy. The taxable income from cashing out a life insurance policy is the amount of money received that is greater than the amount you have paid in premiums during the life of the policy.
Do I have to pay taxes on my Social Security benefits?
It might not sound right, but some seniors must pay federal income taxes on their Social Security benefits, depending on the state in which they live. If you have a source of income that is substantially more than what you receive from your Social Security benefits, you will pay federal income taxes on up to 85% of your benefits.
Here are examples of taxpayer obligations for Social Security benefits:
- •Single filer: Single taxpayers with a combined income (Social Security and other income) between $25,000 and $34,000 may pay taxes on up to 50% of their benefits. If a single taxpayer makes more than $34,000, then they may pay taxes on up to 85% of their benefits.
- •Filing jointly: Taxpayers filing jointly with a combined income of $32,000 to $44,000 will pay taxes on 50% of their benefits. If the spouses have a combined income of more than $44,000, they may be obligated to pay taxes on up to 85% of their benefits.
Should seniors file their taxes if they don’t have to?
Sometimes filing taxes has benefits even for seniors who are not legally required to file. Some potential benefits of filing taxes when not required include:
- •Qualifying for certain income tax credits like the health coverage tax credit, the premium tax credit, and the earned income tax credit, among others.
- •Possibly receiving a refund if federal income tax has been withheld from your paycheck.
Reasons to file federal income tax returns
Although filing federal income tax returns can be a painful process, there are several reasons seniors who have to file taxes should submit a return promptly:
- •It is the law. It is important to comply with federal law, especially when ensuring your taxes are filed accurately and on time.
- •If you do not pay your federal taxes on time, you may have a lien placed on your property, which will make accessing increased credit and loans more difficult in the future.
- •Promptly paying your tax obligation can help you avoid future interest and penalties.
Can seniors be claimed as dependents?
An older adult’s child may claim the senior as a dependent on their taxes. Dependents, taxpayers, and the amount of financial support the adult child provides must meet the following federal guidelines:
- •The senior’s income for the applicable tax year is below the gross income limit. They cannot make more than the federal income limit of $4,700 for 2023 and still be considered a dependent.
- •The taxpayer and the senior must be family or have lived together for at least one year.
- •The taxpayer must have provided at least half the senior’s financial support for the year.
[Read more: The Complete Tax Preparation Checklist for Caregivers]
What about state income taxes?
Whether you are obligated to pay state income taxes depends on the state where you lived or made money during the tax year. Alaska, Wyoming, Washington, Texas, Tennessee, South Dakota, New Hampshire, Nevada, and Florida do not have income taxes. If you do not live in one of these states, contact a tax professional in your area to learn more about your state income tax obligation.
While filing taxes can be a challenge, it’s important to know whether you’re required to do so or not. If you do have to file your taxes this year, review this comprehensive tax preparation guide for seniors so you don’t miss any important details.
