Retirement may mean long, relaxing days without a boss breathing down your neck. But it doesn’t necessarily mean freedom from the tax man. The good news is, you can live fairly comfortably without a big tax bill. In fact, if your only income is Social Security, you may not need to file a tax return at all. The key is keeping your earnings below a certain level based on your age.
Although a variety of deductions and credits can factor into the income of a retired person, the standard deduction for a senior in 2018 is $13,300.
Maximum Earnings Before Paying Tax
The biggest help to seniors is the fact that unearned income is taxed differently than earned income. Unearned income covers Social Security payments, pension payouts and other money you have coming in automatically. Earned income includes any money you make at a current job if, say, you’re working part time to bring in extra money.
If your only income is unearned, you may not be required to file at all. The key is determining whether your earnings exceed the maximum. A general rule of thumb is to add half your Social Security income to the amount you received from other sources, both work earnings and earned income, including nontaxable interest. If this limit exceeds the IRS’s limits for the year in question, also called the “base amount,” you’ll need to file. If you’re 65 and older and filing singly, you can earn up to $11,950 in work-related wages before filing. For married couples filing jointly, the earned income limit is $23,300 if both are over 65 or older and $22,050 if only one of you has reached the age of 65.
Even if all of your income is unearned, you may owe state taxes. Five states – Minnesota, North Dakota, Rhode Island, Vermont and West Virginia – tax up to 85 percent of residents’ Social Security taxes. Another eight states partially tax Social Security benefits, but there are age exceptions, so check your own local laws to see what applies to you.
2018 Taxes and Standard Deductions
Starting in 2018, seniors get a $1,300 standard deduction in addition to the new $12,000 standard deduction given to all taxpayers. If the taxpayer is over 65, unmarried and not a surviving spouse, that additional deduction is $1,300 instead of $1,600. Those who are both blind and over the age of 65 get an additional $1,300 for a total of $14,600. There’s even more good news for senior taxpayers in 2019. The IRS is coming out with Form 1040SR, designed to simplify the filing process for seniors.
2017 Taxes and Income Limits
If you’re still filing taxes for 2017, you'll simply need to ensure your income merits filing and determine the retirement tax rate. You’ll need to file if you earned $11,950 or more during the tax year, assuming you’re filing singly, or $23,000 if you’re married filing jointly and you’re both over 65.
- SmartAsset: Is Social Security Income Taxable?
- Kiplinger: How Your Social Security Benefits Are Taxed
- TIAA: 2018 tax guide
- Forms & Instructions | Internal Revenue Service
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Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.