Some Social Security Recipients Could Miss Out on Tax Refunds

Many Social Security recipients mistakenly believe there's no reason they should file tax returns, but experts say they could be missing out on a lot of free money.

Depending on their income, many seniors are still required to file taxes, even if they've retired and started receiving their monthly Social Security benefits, which averaged $1,760.30 in 2024.

"The need to do their taxes is paramount because most of them have to pay quarterly tax," Kevin Thompson, a certified financial planner and the founder and CEO of 9i Capital Group, told Newsweek. "You do not want to be subject to interest in penalties, so making sure you are in good standing with the IRS is pivotal."

Tax planning also is important when it comes to Roth retirement account conversions, Thompson said.

"Doing your taxes provides me a 1040 which allows for us to implement tax planning strategies not only for the client but also for future beneficiaries of assets and provide legacy planning," Thompson said.

Still, many Americans who make less than the federal minimum senior income tax requirement of $15,700 might think there's no benefit to filing taxes. They'd be wrong though, said Zack Hellman, the owner of Tax Prep Tech, and they'd likely miss out on refunds for the 2023 tax year.

"If federal income tax was withheld from your Social Security benefits or other sources of income, filing a tax return is the only way to receive a refund of the overpaid taxes," Hellman told Newsweek.

Refunds typically go to seniors who have part-time jobs and a low level of Social Security income each month.

Some seniors receiving Social Security also qualify for tax credits, like the Earned Income Tax Credit or Additional Child Tax Credit, which you can only take advantage of by filing a tax return.

And for seniors on Medicare, the income reported on your tax return affects the premiums you pay for Medicare's Part B and Part D coverage, Hellman said.

"Not filing can complicate these calculations," Hellman said, adding that certain states tax Social Security benefits differently from how the federal government does.

Because the U.S. tax code continually changes, it's difficult for Americans to be aware of all their tax obligations and opportunities in any given year.

"Not everyone has access to reliable tax advice. While free resources exist, they may not reach all segments of the population effectively," Hellman said. "Some beneficiaries may incorrectly assume that they do not need to file taxes if Social Security is their only source of income, overlooking potential benefits."

Low-income Americans can receive help when filing taxes by using the IRS's Volunteer Income Tax Assistance program, which is free. The IRS also has a Tax Counseling for the Elderly program that's also free. Certified public accountants also will help seniors with this task, but the charge can be high.

Many seniors remain unaware of the benefits of filing their taxes each year because they don't understand the specific nuances of tax law, finance expert Michael Ryan, who runs MichaelRyanMoney.com, told Newsweek. But for the financial planner, many clients end up being grateful they took the time to fill out the forms.

"I've encountered many individuals who were pleasantly surprised to learn about the potential benefits of filing their taxes," Ryan said. "It seems that while the information is out there, it's not reaching everyone it should."

He added, "While it might seem like an unnecessary hassle, especially if you're not obligated to file, the potential benefits could significantly impact your financial health."