Tax Filing Requirements for Retired Taxpayers

Retirement is your time. Leaving your job or career behind, you have withdrawn from the hurly-burly confusion of rush hour commutes, imminent deadlines, noon lunch whistles and the like. Life suddenly becomes void of obligations.

Well, almost.

Uncle Sam is glad you have taken your leave and called it a day, but would also like to remind you that your tax filing obligations may still carry over well into your retirement.

So, if you are retired, perhaps on Social Security or other supplemental income, how do you know if you are required to file a federal tax return?

Tax filing responsibility depends on three factors: gross income earned, filing status and your age. It is not correct to assume that just because you have reached the ripened age of 65, your duty to file a tax return has expired.

Gross Income

The dollar amount threshold changes some from year to year, but for the purpose of this article, we will use the 2009 figures.

Gross income is defined as the total amount of income received in the form of money, goods, services and property. Gross income includes both earned income, such as wages, salaries and net self employment income, as well as unearned income, such as interest and dividends, pension and Social Security benefits, unemployment, alimony and child support.

Filing Status and Age

Along with the total amount of gross income, you must also consider your filing status in conjunction with your age.

If you are a single individual, then your filing status would be either Single of course, or you may also qualify to file as Head of Household. In order to be considered head of your household, you must be unmarried or considered unmarried (your spouse did not live in your home for at least the last six months of the filing year), and you must have paid more than half the cost of supporting and keeping up a home that you and a qualifying person live in together. The qualifying person would generally have to be your dependent, as defined by the IRS.

If you are married, then your filing status would either be Married Filing Joint or Married Filing Separate.

A fifth Filing Status that is not often used is Qualifying Widow(er) with Dependent Child.

See IRS Publication 501 for more information on all of the filing statuses mentioned above.

Once you have determined your gross income and your filing status, reference the dollar amount thresholds for filing, based on your age. You may find this information in various IRS Publications, such as Pub 501, Pub 17, or the annual 1040 Instruction booklet.

For example, for 2009, if you are a single person, under 65, you are required to file a tax return if your gross income was at least $9,350. For those 65 and older, you must file a tax return if your gross income was as low as $3,650 (if you are filing Married Separate) or as high as $20,900 (for combined incomes if you are filing jointly with your spouse).

Individuals who are the dependent of another taxpayer, as well as those who are also blind or over the age of 65, have a different set of dollar amount filing requirements.

Social Security and Disability

Income from Social Security includes retirement benefits, disability payments and survivor benefits in the event your spouse has predeceased you.

If your only income, both earned and unearned, is from Social Security, then you likely have no obligation to file. Social security income on its own is not taxable. Supplemental Security Income (SSI) is never taxable. Don't confuse the two programs. SSI is also a Federal program, but is funded out of general revenues, not by individuals who have paid into Social Security tax while they were employed.

If you have other income sources in additional to your Social Security, then a portion of your Social Security benefits may become taxable.

The IRS has a simple formula to help you determine if any part of your Social Security income will be subject to tax.

Begin with taking the total amount of your Social Security annual benefit income and dividing it in half. You will find your total earnings in box 5 of your Form 1099-SSA, mailed to you by the Social Security Administration in January or February of each year.

Take the halved figure, and to that add the total of all of your other income sources, both earned and unearned, including interest that may be tax exempt on its own.

You then need to compare the resulting amount with the base amount for your filing status. For 2009, the base amounts are as follows:

- $25,000 for Single, Head of Household or Qualified Widow(er) filers.

- $32,000 for taxpayers filing Married Joint.

- Zero if you filed Married Separate and you lived with your spouse at any time during the year. If you file Married Separate and are separated from your spouse and have maintained a different residence for the year, the amount is $25,000.

If the amount that you determined above is higher than the base amount for your filing status, then a portion of your Social Security Income may be taxable.

Once you have concluded this, you will need to determine what amount is taxable. In order to do so, you must use a worksheet found in the 1040 Instruction booklets or preferably, IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits, which also provides additional information on this subject.