Taxes and Seniors

I know a few seniors that are more senior than I am.

A lot of them say that tax preparers years ago said they don’t have to file federal taxes anymore.
Many of them are now in the RMD age range and take the recommended RMDs and have taxes withheld.

How much withheld, and how they decide that is a mystery, as without filing you wouldn’t know what tax bracket you are in? Is there some magic number that the IRA plans use?

Might they be leaving money on the table by not filing?
Or just figuring out if they need to file now?

I’m just trying to understand the (years ago) blanket statement ‘I was told I don’t have to file anymore’ that they say.

I guess it all depends?
Could you go from not filing to back again to filing?

I know I’m expecting to be in a higher tax bracket as distributions become required.

nag

Age has nothing to do with having to file taxes. Amount of taxable income does… Others can chime in on what the minimum income is for not paying taxes,

As for RMD withholdings, I know with Fidelity you can put any non-decimal number in the box for withholding taxes from a RMD distribution. 0-100% I surely wouldn’t trust a tax preparer saying you no longer need to file taxes. They have no idea as to what your future income might be. People die and surely could gift you money in their will or as a beneficiary of one of their accounts. Who knows you could win the lottery.

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Thanks, yes I’m aware of the income levels, I’m just so surprised by how many seniors say they don’t have to file anymore*. Period!

I’m just concerned that they may be paying more in taxes than they need to.

I’ve googled to heck and back without finding an article on senior taxation and that your situation should be revisited every year.

nag
*one distant/by marriage aunt comes to mind

Many of them are now in the RMD age range and take the recommended RMDs and have taxes withheld.
How much withheld, and how they decide that is a mystery, as without filing you wouldn’t know what tax bracket you are in? Is there some magic number that the IRA plans use?

There’s nothing magic. You can tell your IRA custodian how much to withhold, or to withhold nothing.
By the way, there’s no such thing as a “recommended RMD” RMD stands for REQUIRED minimum distribution. It’s a definite amount based on the year end balance at the end of the prior year.

Might they be leaving money on the table by not filing?
Or just figuring out if they need to file now?

Actually, yes, if they opted to have taxes withheld, and their income isn’t enough to generate a tax liability. Yes, they should file a return to get a refund of any overpayments.

Bill

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From a google search for “minimum income to not have to file taxes”.

The minimum income amount depends on your filing status and age. In 2021, for example, the minimum for single filing status if under age 65 is $12,550. If your income is below that threshold, you generally do not need to file a federal tax return. Review the full list below for other filing statuses and ages.

Wondering if you need to file to get your stimulus payment? Review our stimulus payment information.

Minimum income to file taxes

How much do you have to make to file taxes
Single filing status:
$12,550 if under age 65
$14,250 if age 65 or older
Married filing jointly:
$25,100 if both spouses under age 65
$26,450 if one spouse under age 65 and one age 65 or older
$27,800 if both spouses age 65 or older
Married filing separately — $5 for all ages
Head of household:
$18,800 if under age 65
$20,500 if age 65 or older
Qualifying widow(er) with dependent child:
$25,100 if under age 65
$26,450 if age 65 or older
You might also be required to file for other reasons, such as if you’re self-employed or paid on a 1099-MISC form, or bought health insurance from a state or federal marketplace. If you can be claimed as a dependent on someone else’s return, separate filing thresholds apply. Please see IRS Publication 501 for additional information.

Thanks, but I think it’s a little bit more complicated than that with social security.

It matters what is ‘considered income’ - and over a point, there’s a moving bar on how much of your social security is taxable.

I believe they take half of your social security and add it onto your ‘income’ to see what portion of SS is taxable.

nag
nothing is simple, right???

Hi Bill,
Yes, sorry for my not saying things properly.

By the way, there’s no such thing as a “recommended RMD” RMD stands for REQUIRED minimum distribution. It’s a definite amount based on the year end balance at the end of the prior year.

I meant there’s an RMD but it’s optional to take out more, hence my misuse of the term ‘recomended RMD’.

Although, one can always break the law and not do it :slight_smile:

nag

From my experience as a tax preparer, a lot of people who were just collecting Social Security were told that they didn’t need to file taxes THIS YEAR and remember that as you don’t need to file taxes. I always emphasized to my clients that while you don’t have to file taxes this year you should call me next year to be sure that’s true. The especially need to file a tax return if they have had withholding anywhere even if not actually required to file as they probably have money coming back.

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Thanks, yes I’m aware of the income levels, I’m just so surprised by how many seniors say they don’t have to file anymore*. Period!

Many don’t have to file federal income taxes. State laws vary. It all depends on how much income in addition to Social Security.

https://turbotax.intuit.com/tax-tips/retirement/when-does-a-…

• If the only income you receive is your Social Security benefits, then you typically don’t have to file a federal income tax return.

• If you are at least 65, unmarried, and receive $14,250 or more in non-exempt income in addition to your Social Security benefits, you typically must file a federal income tax return (tax year 2021).

• If you are 65, married, and file a joint return with a spouse who is also 65 or older, you must file a return if your combined gross income is $27,800 or more (or $26,450 if your spouse is under 65 years old).

• Regardless of your filing status, if the sum of half your Social Security plus your adjusted gross income plus your tax-exempt interest and dividends exceeds $25,000 (or $32,000 if you are married filing jointly), then a portion of your Social Security benefits are included in gross income.

Many of them are now in the RMD age range and take the recommended RMDs and have taxes withheld.

If they are having taxes withheld then they should file.

It is unlikely that they have exactly the right amount of taxes withheld.

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I’m just concerned that they may be paying more in taxes than they need to.

If they aren’t filing because they were told their income levels were so low they didn’t need to file, they shouldn’t be having any taxes withheld. If they truly don’t need to file because their income level is low enough, any taxes they had withheld should be refunded to them, BUT ONLY IF THEY FILE. If they had taxes withheld and didn’t file, they can still claim their refund as far back as tax year 2018 as long as they file the 2018 return before April 18, 2022.

AJ

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Thanks very much everyone

nag

My solution to this issue is very simple -

#1. Decide to pay your taxes via the Federal Tax payment site -
https://www.eftps.gov/eftps/

#2. Guess, estimate or ask your Tax Pro what you Taxes will be

#3. Go to efts.gov and schedule withdraws to pay your quarterly taxes

#4. Before December check to see if you need to withhold more or less –

#5. Adjust Q4 payment if needed.

There is one possible “GotCha”. If you schedule a payment via the system and there are not sufficient funds, you will face a significant penalty – I change banks and forgot the cancel the payment – 2% of the scheduled payment

In a normal year, when I get my 1040, it always includes estimated payments for the next year. I just schedule them at the time I make my April 15th payment to the IRS. Personally I never have any withholding for RMDs, Social Security, etc. Since I know my income, I can set Estimated Tax Payments.

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In a normal year, when I get my 1040, it always includes estimated payments for the next year. I just schedule them at the time I make my April 15th payment to the IRS. Personally I never have any withholding for RMDs, Social Security, etc. Since I know my income, I can set Estimated Tax Payments.

We’re retired and not yet of Social Security age, so our income currently consists of retirement plan distributions and around $7k of taxable investment income (Interest, dividends and capital gains).

I’ve decided that I’d rather just have the 10% withholding on our retirement distributions, since that currently more than covers our tax liability and is simple. Then get the refund in the spring when we do the taxes. Easier than doing the quarterly estimated tax payments, at least for our situation, and not a humongous amount refunded. I expect for this to work for the foreseeable future.

For PA State taxes, given our current situation, I generally just make one payment to cover the entire year at the same time I file the previous year’s taxes, to cover the expected taxable investment income. Retirement distributions are not taxed in PA.

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My solution to this issue is very simple - GWPotter


I have an even simpler solution.

  1. Set up my withholding to equal or exceed 110% of prior years actual tax paid.

  2. Forget about it for another year.

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https://www.eftps.gov/eftps/ …schedule withdrawals to pay your quarterly taxes…
Thanks for the link! I pay quarterly taxes online using irs.gov, which works for one payment at a time, but it’d be more convenient to set it up to happen automatically.
If I can also schedule state income taxes ahead of time, I’ll do both Fed’l and state.

Currently my calendar sends me an email when it’s time to pay quarterly taxes. Not that I’ve ever forgotten, but I have worried that I might forget, so the reminder removes that worry.
Almost everything else is on autopay: rent, utilities, insurance, newspapers, magazines, phone, internet, 529, charities, even credit cards. (The only thing I have to do now, besides taxes, is Venmo a weekly sum to the aide who takes care of Dad’s parakeets in his room at Assisted Living. Venmo, alas, doesn’t have the option of recurring transfers. So my calendar texts me a weekly reminder for that.)

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From my experience as a tax preparer, a lot of people who were just collecting Social Security were told that they didn’t need to file taxes THIS YEAR and remember that as you don’t need to file taxes.

People hear what they want to hear.

My mother-in-law wanted to know when she would stop paying taxes. My answer was the year after her death. Not completely true. For the last few years of her life, her medical care exceeded her income.

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I have an even simpler solution.

1. Set up my withholding to equal or exceed 110% of prior years actual tax paid.

2. Forget about it for another year.

Good when income is level or increasing.

It doesn’t work for us this year because last year was a high income year and this year will have lower taxable income.

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From my experience as a tax preparer, a lot of people who were just collecting Social Security were told that they didn’t need to file taxes THIS YEAR and remember that as you don’t need to file taxes. I always emphasized to my clients that while you don’t have to file taxes this year you should call me next year to be sure that’s true. The especially need to file a tax return if they have had withholding anywhere even if not actually required to file as they probably have money coming back.

This is so true.

Even seniors that have been doing tax aid, or vita, have said, well if (due to covid) they didn’t contact me, guess I don’t need to do taxes.
Both orgs have had limited means to track down everyone to make appointments.

In my case, my relative, just is convinced, no more tax forms for me, years ago.
Cos ‘My guy’ said so.

nag
not going there to argue, nudge maybe, but that’s it

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In my case, my relative, just is convinced, no more tax forms for me, years ago.
Cos ‘My guy’ said so.

The worst case I know about is an acquaintances’ mother. She decided around 10 years before her death that she was not ever going to file a tax return while still owning a business. Well, she succeeded. Her estate was handed over to her state and the IRS to negotiate which agency was taking how much of the estate.

(A warning to be very careful about determining the status of an estate before assuming responsibility for administering it.)

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