This article originally appeared on MarketWatch.
Recently we received the following email from a reader:
I want to know if I live off my Social Security check and have no other income Should I file a federal tax return? My annual income is $21,000. My living and medical expenses cover most of it. I would really appreciate any advice you can give me on this matter.
The short answer is “probably not”. But of course, there are always mitigating circumstances for each situation, so it pays to look more closely at it to qualify the answer.
As long as the only income the person receives is from Social Security and no tax is levied on those payments, most likely it is not necessary to file a tax return. But there may be other matters at work that may require you to file (or deal with) a tax return somehow.
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If you have any tax withheld, either from Social Security payments, or from any other source, including quarterly estimated tax payments or refunds made from previous years, you should file a tax return. In many cases you will get most if not all withheld tax refunds.
If you were due an economic impact payment in 2021 but did not receive it, filing a tax return will enable you to claim this payment as a recovery rebate credit.
If you’re married and your spouse receives income from any other source (other than Social Security), you may need to file a tax return based on that other income. Don’t forget that this includes any taxable sales of investments (reported on Form 1099B) as well as interest and dividends (reported on Forms 1099INT and 1099DIV, respectively).
These sources are often overlooked when you have tax-exempt income, including municipal bonds or U.S. savings bond interest, but are important in calculating whether your Social Security benefits are included as taxable. You can use tools available from the IRS—Are My Social Security or Railroad Retirement Tier I Benefits Taxable?—to help you determine whether your Social Security benefits are taxable based on your other income.
The reader does not indicate any other income, but if you are employed and/or have self-employment income, it is often necessary to file a tax return to settle your withholding against tax on your income. Often the self-employment tax is overlooked in these situations.
Also, if you are someone else’s dependent or someone else is your dependent, there may be complications in your income that may require filing a tax return.
If you or your tax returnee (spouse or dependent) has health insurance coverage through an Affordable Care Act Marketplace (such as Healthcare.gov), filing a tax return to reconcile any premium adjustments and credits is a must. matter is necessary. From you If these dependents qualify, you may also be eligible for the Child Tax Credit or other dependent credits, which will only be available if you have filed your tax return.
The earned income credit may also be available to you, depending on your circumstances — and you can only get this credit when you file a tax return.
If you’ve used a health savings account to pay for medical expenses in the past year, you’ll need to file a tax return to account for those withdrawals against your qualified medical expenses.
As an example, there are a few other instances that may require a tax return, including a Roth conversion. In addition, if you were subject to an IRMAA surcharge on your Medicare premiums in the previous tax year, it may be worth your while to file a tax return to obtain that proof of low income, even if you don’t owe any taxes. is return.
If you’re unsure about whether you need to file a tax return, the IRS has an interactive tool you can use to help determine whether filing is necessary. Just do I need to file a tax return? To get started, visit the IRS website.
Jim Blankenship is a fee-only financial advisor based in New Berlin, Ill., specializing in Social Security retirement benefits as well as retirement and income tax issues.
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