One common tax myth is the belief that you don’t need to file taxes if you’re on Social Security. This misconception can lead to potential non-compliance with IRS regulations. Here's what you need to know to stay compliant and avoid these pitfalls.

Origin of the Myth

• Retirement Income Assumptions: Many people assume that Social Security benefits alone do not trigger the need to file a tax return.

• Lack of Awareness: There is often a lack of understanding about the tax obligations related to Social Security benefits and other sources of income.

Reality of Filing Taxes on Social Security

• Combined Income: The IRS uses a formula called combined income to determine if your Social Security benefits are taxable. Combined income includes:

• Adjusted Gross Income (AGI)

• Non-taxable interest

• Half of your Social Security benefits

• Filing Thresholds:

• Single Filers: If your combined income is below $25,000, your benefits are not taxable. Between $25,000 and $34,000, up to 50% of your benefits may be taxable. Above $34,000, up to 85% may be taxable.

• Married Filing Jointly: If your combined income is below $32,000, your benefits are not taxable. Between $32,000 and $44,000, up to 50% of your benefits may be taxable. Above $44,000, up to 85% may be taxable.

IRS Guidelines on Filing Requirements

• Filing Thresholds: You must file a tax return if your gross income exceeds certain thresholds based on your filing status and age.

• Taxable Social Security: If your Social Security benefits and other income exceed the filing thresholds, you must report and potentially pay taxes on a portion of your benefits.

Why the Myth Persists

• Simplified Advice: Many people simplify their understanding of tax obligations in retirement, believing that Social Security alone exempts them from filing.

• Anecdotal Advice: Misleading information and anecdotal advice from non-professional sources perpetuate the myth.

Avoiding the Pitfall

• Know Your Income: Understand how your combined income affects the taxability of your Social Security benefits.

• Check Filing Thresholds: Verify whether your total income, including Social Security, requires you to file a tax return.

What You Need to Do

• Calculate Combined Income: Include your AGI, non-taxable interest, and half of your Social Security benefits to determine your combined income.

• File a Return if Necessary: If your combined income exceeds the filing thresholds, ensure you file a tax return and report your Social Security benefits appropriately.

Consulting a Tax Professional

• Seek Professional Advice: Consulting a tax professional can ensure you understand your filing requirements and accurately report your income.

• Accurate Records: A professional can help you maintain proper documentation and navigate the complexities of filing taxes on Social Security benefits.