Frequently Asked Questions (FAQs)
Do I have to file taxes in retirement?
Not necessarily. Whether you need to file a federal tax return depends on your gross income, filing status, and age. The income thresholds for filing are higher for those age 65 and older. However, even if your income is below the filing threshold, you may still want to file a return if you had taxes withheld and are due a refund.
What is the difference between a tax credit and a tax deduction?
This is a great question. A tax deduction reduces your taxable income. For example, a $1,000 deduction might save you $120 or $220 in tax, depending on your tax bracket. A tax credit is much more powerful. It reduces your final tax bill dollar-for-dollar. A $1,000 tax credit saves you $1,000 in tax. An example for seniors is the Credit for the Elderly or Disabled, though it has very strict income limits.
How do state taxes for retirees work?
State tax rules vary dramatically. Some states have no income tax at all. Others do not tax Social Security benefits or offer special exemptions for pension income for seniors. It is very important to check the rules for your specific state, as there may be significant state-level retirement tax breaks available to you. You can find your state’s tax agency through USA.gov’s state tax page.
