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IRS: No required to declare!

Dec 8, 2018 | Finances, IRS - Internal Revenue Service, US Tax Return 1040 / 1040NR | 6 comments

Here’s why some retirees no longer have to file a tax return

  • Retirees whose only source of income is Social Security generally will not owe any federal taxes and therefore don’t need to file a return with the IRS.
  • Even some people with taxable sources of income end up owing nothing, due to how Social Security benefits are taxed and the higher standard deductions for those age 65 and older.

Forsome retirees, there’s an unanticipated freedom thatcomes with aging: not having to file a federal tax return.

Dueto a combination of limited taxation on Social Security benefits,the tax-free status of some other retirement income — i.e., Roth IRAs — andother tax breaks for older Americans, retirees can reach a point where they owenothing at tax time and therefore are off the hook for filing.

The bottom line is this: Retirees whose only source of income is Social Security generally have no taxes due and therefore don’t need to file a return. For others it depends.

It’s a very common experience for more modest [earners], they’re incredulous when it happens, because they’ve filed returns for 50 or 60 years and it’s the end of an era

For starters the IRS uses your “combined income” to determine how much of your Social Security benefits are taxable, if any. To arrive at that amount, add one-half of your benefits to your adjusted gross income and nontaxable interest (i.e., from municipal bonds).

Married couples who file a joint tax return owe no tax on their benefits if that so-called combined income falls below $32,000. If it lands between $32,000 and $44,000, up to 50 percent of benefits could be taxed, and incomes above $44,000 face up to 85 percent taxation on benefits.

For single filers, the combined-income taxation threshold is $25,000. The 50 percent tax on benefits hits combined incomes from $25,000 to $34,000, and 85 percent for amounts above that.

Forpeople tapping their Roth IRA — whose withdrawals generally aretax-free in retirement — a tax return might not be needed.

For illustration, say a married couple has two sources of income: Social Security ($30,000 annually) and a Roth IRA ($30,000 each year). Because the Roth distributions are untaxed, and their Social Security benefits fall below the $32,000 threshold, all of that income would be tax-free.

Even some taxpayers with sources of taxable income, such as a traditional IRA or 401(k) plan — and whose Social Security ends up getting partly taxed — can find themselves without a filing requirement.

Once you subtract out the standard deduction, you sometimes don’t have any tax liability, because the standard deduction has nearly doubled for all taxpayers for 2018 through 2025 — and taxpayers age 65 or older continue getting an extra deduction — there’s a chance even more retirees won’t have to file than in the past.

Keep in mind, however, that personal exemptions have been eliminated in 2018.

If you have any questions, please post them directly on this blog!

6 Comments

  1. Dawn Kaufman

    I am on disability and make 24k per year. I am 57 years old. My son(14) recieves 1k per month because of disabibility so family income over the year is 36K. What of that is tacable in Spain and at what %. Thank you.

    Reply
    • Antonio Rodriguez

      Both incomes are taxable in Spain if you are a fiscal resident of Spain (= if you live in Spain and you spent more than 183 days in Spain during 2018). If your son receives the income from only one payer he might not be obliged to declare, but he could in order to recuperate a withholding.

      Reply
  2. Denise Shaffer

    If I am a resident of Spain and only have US social security, do I have to pay tax on that in Spain?

    Thank you

    Reply
    • Antonio Rodriguez

      If your only income is the US SSecurity Benefits, you do not need to file a Form 1040 in the U.S.

      As long as it is the only worldwide income received if the amount received is less than 12,000€ you do not have to report it into the IRPF in Spain if it is more, it is fully taxable in Spain.

      If you received any other income worldwide, then it will be fully taxable from the first euro.

      Please, remember that since 2017 the AEAT knows if you receive SS benefits from the US and they have up to four more years to claim it

      Reply
      • Denise Shaffer

        Thank you for your reply. I am looking at Article 20 and 21 of the Convenio between Spain and the US and have a different interpretation.

        El art. 17 del MCUSA mantiene como criterios de tributación exclusivos el del Estado de la residencia para las pensiones privadas y el del Estado de la fuente para el caso de pensiones públicas (a diferencia del CDI España-EEUU, que permite la tributación compartida en el caso de pensiones de la Seguridad Social).

        Can you kindly give me an opinion on this?

        Reply
  3. Antonio Rodriguez

    Article 20 of the convention refers to pensions Art 21 refers to other payments, from the administration, except for pension.

    If you are a fiscal resident of Spain, you are taxed in Spain for your private pension and the Social Security Benefits from the U.S. Public pensiones are no taxed in Spain.

    Reply

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