Recently, we received the following email from a reader:
I would like to know if I live off my social security check and have no other income, do I have to file a federal tax return? I have an annual income of $21,000. My living and medical expenses take up most of it. I really appreciate any advice you can give me on this.
The short answer is “probably not”. But of course, there are always extenuating circumstances for every situation, so it’s worth taking a closer look to nuance the answer.
As long as the only income the individual receives is from Social Security and there is no tax withheld from these payments, filing a tax return is probably not necessary. But there may be other issues at work that might require you (or you) to file a tax return anyway.
If you had tax deductions, either from Social Security payments or from any other source, including estimated quarterly tax payments or refunds carried forward from previous years, you must file a tax return. In many cases, you will recover most if not all of the tax withheld as a refund.
If you were due to receive an economic impact payment in 2021 but did not receive it, filing a tax return will allow you to claim that payment as a recovery rebate credit.
If you are married and your spouse receives income from another source (apart from Social Security), you will likely need to file a tax return based on that other income. Remember that this includes all taxable sales of investments (reported on Form 1099B) as well as interest and dividends (reported on Forms 1099INT and 1099DIV, respectively).
Learn more about Social Security on MarketWatch
When you have tax-exempt income, including municipal bonds or interest on U.S. savings bonds, these sources are often overlooked, but they are important in calculating whether your Social Security benefits might be included. as taxable. You can use the tool available from the IRS – Are my Social Security or Tier I Railroad Retirement benefits taxable?–to help you determine if your Social Security benefits are taxable based on your other income.
The reader does not show any other income, but if you happen to be employed and/or have self-employment income, it is most often necessary to file a tax return to reconcile your withholding tax tax on your income. Often the self-employment tax is overlooked in these situations.
Also, if you are dependent on someone else or someone else is dependent on you, there may be complications with your income that may require you to file a tax return.
If you or anyone on your tax return (spouse or dependents) has health insurance coverage through an Affordable Care Act marketplace (such as Healthcare.gov), the filing a tax return is required in order to reconcile premium adjustments and credits. yours. If these dependents are eligible, you may also be eligible for child tax credits or other dependent credits, which would only be available if you file a tax return.
You may also be offered an earned income credit depending on your situation – and you can only receive this credit if you file a tax return.
If you used a health savings account to pay for medical expenses in the past year, you’ll need to file a tax return to count those withdrawals against your eligible medical expenses.
There are a few other cases that might require a tax return, including Roth conversions, for example. Also, if you were subject to an IRMAA surcharge on your health insurance premiums in a previous tax year, it may be worth filing a tax return to have this proof of the reduced income, even so you owe no tax on the return.
If you’re not sure if you need to file a tax return, the IRS has an interactive tool you can use to help you determine if you need to file a return. Just go to Do I have to file a tax return? on the IRS website to get started.
Readers, do you have a question about social security? Email us at [email protected] and we could use your question in a next column.