For millions of Americans, Social Security provides essential financial support in retirement. But what many don’t realize is that certain decisions involving your benefits can catch the IRS’s attention. From inaccurate reporting to suspicious withdrawals, some Social Security moves raise red flags that could trigger audits, penalties, or delays. Whether you’re receiving benefits or planning to soon, it’s critical to understand how your actions may look to the IRS. Here are 10 Social Security red flags that could put your finances under unwanted scrutiny.
1. Not Reporting Other Income While Collecting Benefits
If you’re earning income from a side job, rental property, or investments while also collecting Social Security, it must be reported accurately. Failing to include this income on your tax return can be a major Social Security red flag. The IRS cross-references your Social Security data with other income sources, and discrepancies could lead to an audit. Even retirees who think their income is too small to matter may still face penalties. Always report every dollar earned, no matter how insignificant it may seem.
2. Double-Dipping on Disability and Retirement Benefits
Some individuals attempt to collect both Social Security Disability Insurance (SSDI) and retirement benefits at the same time. In most cases, this is not allowed unless you meet very specific criteria. Filing for both without proper eligibility raises a significant Social Security red flag. The IRS and SSA work together to identify and investigate potential fraud in this area. If you’re unsure of your eligibility, it’s best to speak with a Social Security representative before filing.
3. Claiming Benefits Under a Deceased Spouse Without Proper Documentation
Survivor benefits are a lifeline for many, but claiming them requires accurate and complete documentation. Submitting incomplete or false information can not only delay your payments but also prompt an IRS review. These types of Social Security red flags are taken seriously and may be referred to other federal agencies for fraud investigation. Always ensure marriage, death certificates, and prior benefit history are correctly submitted. The smallest inconsistency can lead to major complications.
4. Filing Early While Earning Too Much
Claiming Social Security before your full retirement age while continuing to earn a high income can reduce your benefits and raise suspicion. The Social Security Administration sets income thresholds, and exceeding them while collecting early benefits often flags your file. This is one of the more common Social Security red flags that results in recalculations or benefit withholding. If you plan to keep working, consider delaying your benefits to avoid headaches. The IRS is quick to review cases where reported earnings don’t align with early filings.
5. Failing to Pay Taxes on Social Security Benefits
Many retirees are surprised to learn that their Social Security benefits can be taxable. If you skip this step on your return or intentionally exclude the income, it can trigger a notice from the IRS. Not paying taxes on Social Security is a classic red flag, especially when your other income exceeds the IRS limits for taxation. Up to 85% of your benefits may be taxable depending on your income level. Double-check your Form SSA-1099 and include it with your return each year.
6. Using a Different Identity to Claim Benefits
It may sound extreme, but identity misuse does happen—sometimes even within families. Claiming benefits under a false or borrowed Social Security number is fraud, and it immediately generates a Social Security red flag. The IRS and SSA conduct routine audits and database checks to catch mismatches. Even innocent mistakes, like typos or outdated records, can appear suspicious. Be sure your personal details match across all filings to avoid complications.
7. Receiving Benefits for a Child Without Meeting Custody Requirements
Social Security offers benefits to children of retirees or deceased workers—but only under strict conditions. If you’re not the legal guardian or lack appropriate custody documentation, receiving benefits on a child’s behalf could raise a red flag. These Social Security red flags often arise during annual benefit reviews. Ensure all custody and dependency paperwork is up to date and verifiable. Otherwise, you could be required to pay back those funds with interest.
8. Amending Tax Returns to Add Social Security Late
Going back and amending a tax return to retroactively include Social Security income can look suspicious—especially if it results in a larger refund. While sometimes necessary, this action is considered a Social Security red flag if it seems like you’re manipulating income timing. The IRS will review amended returns carefully and may ask for additional proof. If you forgot to include your SSA-1099 initially, explain the correction in detail. Transparency is your best protection against suspicion.
9. Failing to Report Foreign Bank Accounts While Receiving Benefits
If you’re living abroad and collecting Social Security, you’re still required to report foreign bank accounts if the balances exceed IRS limits. Not doing so could raise a Social Security red flag, especially when SSA payments are being deposited into those accounts. The IRS tracks international financial activity closely through FATCA agreements. Failing to disclose foreign accounts can lead to serious penalties—even for retirees. Make sure to file an FBAR if required.
10. Excessive Benefit Withdrawals or Backpay Reallocations
Large lump-sum back payments or repeated requests to change direct deposit information can also raise concerns. These patterns may appear as attempts to hide assets or manipulate payments. The IRS and SSA use algorithms to detect unusual activity, which can then be flagged for further review. Legitimate changes are fine, but repeated or erratic ones are Social Security red flags. If you need to update your payment method, do it through official channels and document everything.
Stay Smart with Social Security to Avoid IRS Trouble
When it comes to Social Security, even small missteps can trigger big problems with the IRS. From failing to report income to making questionable claims, these Social Security red flags can lead to audits, repayment demands, or worse. The key is knowing the rules, staying transparent, and keeping detailed records of all your benefits activity. If something seems unclear, consult a tax professional or SSA representative before making a move. It’s better to be cautious now than deal with penalties later.
Have you run into trouble with Social Security and taxes? Share your experiences—or your tips for staying out of trouble—in the comments below!
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