My spouse died in Fall 2022. I filed my taxes for that year as joint. Then, in 2023, I received an unexpected check for a small annual bonus from their employer. It is my understanding that I cannot file joint on my 2023 taxes because I do not have dependents and am not eligible for SS benefits yet. So, since I can't have them joint, how will I report their income? I use TurboTax, of course.
This is a situation known as "income in respect of a decedent." See IRS publication 559.
https://www.irs.gov/forms-pubs/about-publication-559
https://www.irs.gov/publications/p559#en_US_2022_publink100099595
If there is not an open estate, and if you are your spouse's beneficiary or otherwise the person legally entitled to their property, then you report the income on your tax return in your name. You would file single as normal (or as qualifying surviving spouse** if you have a dependent child). (**This used to be called "qualifying widow" and is still called that on a lot of web sites.)
Note that the employer should issue a 1099-MISC, and not a W-2. Because the bonus was paid in the year after your spouse died, it is not supposed to be subject to medicare or social security tax.
This is a situation known as "income in respect of a decedent." See IRS publication 559.
https://www.irs.gov/forms-pubs/about-publication-559
https://www.irs.gov/publications/p559#en_US_2022_publink100099595
If there is not an open estate, and if you are your spouse's beneficiary or otherwise the person legally entitled to their property, then you report the income on your tax return in your name. You would file single as normal (or as qualifying surviving spouse** if you have a dependent child). (**This used to be called "qualifying widow" and is still called that on a lot of web sites.)
Note that the employer should issue a 1099-MISC, and not a W-2. Because the bonus was paid in the year after your spouse died, it is not supposed to be subject to medicare or social security tax.
I am surprised that it won't have SS or medicare tax applied. Good to know about the 1099-Misc! That is helpful. I suspected that is how I would need to handle it, but am very grateful for your expert confirmation and additional information. Thanks so much!
When TurboTax asks me the reason for the 1099-MISC, what do I say? It is wanting to know if it is work-related. I don't know what to say because it was related to my deceased husband's work, but not mine. Do I say, "2022 bonus received in 2023 from deceased husband's employer"? Or is there something simpler to say?
Do I answer "yes" or "no" to the TT question "does this 'bonus' involve an intent to earn money?"?
The Form 1099-MISC should have been issued to your spouse's estate, not to you, so you should not have a From 1099-MISC to enter into TurboTax when preparing your individual tax return. If the amount of income to the estate is more than $600 during the estate's income tax year, the estate must file Form 1041 where this income would be included. The estate would then pass this income through to you on Schedule K-1 (Form 1041) which you would include on your tax return for the year that contains the end date of the estate's tax year.
This is "income in respect of a decedent" and, while an argument could be made that the money should have been issued to the estate, I don't think that is the only option, otherwise "income in respect of a decedent" wouldn't be a separate thing with its own rules.
@CindyKR This is "other income" to you. On your tax return, this is not income earned from working or from an intent to work, because it was not your work or intent to work, and the money is going on your tax return. You should not generate a schedule C and you should not pay self-employment tax.
I just got the tax form for the bonus for my spouse. Unfortunately, they reported it on a W-2 in my spouse's name. Now what?
Finally, to enter this in TT, Go into Wages & Income, scroll down to the bottom where it says Misc. Income, than scroll down to the bottom where it says "Other reportable income", type in the description "Bonus
Income with the amount.
[Edited 01/29/2024|1:50 pm PST]
@CindyKR wrote:
I just got the tax form for the bonus for my spouse. Unfortunately, they reported it on a W-2 in my spouse's name. Now what?
This situation is covered in IRS Revenue Ruling 64-150. Since the "64" means 1964, it;s not online at the IRS web site, but it is online here.
https://www.taxnotes.com/research/federal/irs-guidance/revenue-rulings/rev-rul-64-150/d47j
Here are two lawyer blog posts discussing the issue.
https://kahnlitwin.com/blogs/tax-blog/how-do-you-report-deferred-compensation-when-an-employee-dies
Your next step is to contact the employer and ask that the W-2 be canceled and ask for a 1099-MISC. Point out the revenue ruling and the fact that they save on social security and medicare tax too. Keep your correspondence in writing and keep copies.
If they refuse to correct the problem, your federal and state income tax will be the same either way, but you are being cheated out of the social security and medicare withholding that should not have been made. You can report the income as if it was on a 1099-MISC in turbotax. Make sure to include any federal tax that was withheld (from box 2 of the W-2, goes into box 4 of the 1099-MISC) and state tax withheld (from box 17 of the W-2, goes into box 16 of the 1099-MISC).
If the IRS sends a letter asking about the W-2, reply by telling the story (bonus paid in the year after death) and include copies of your correspondence, and explain that you included the income as "other income" on your tax return following the rules for "Income in respect of a decedent."
Then, to get a refund of the mistakenly withheld social security and medicare tax, you will need to file form 843. Again, include your story, copy of the death certificate, copy of the bonus check or deposit showing it was paid in the following calendar year, correspondence with the employer, etc.
This just complicated fast. I now see that my spouse's last paycheck also was not reported on the correct form since it was included on the W-2 with all the other wages, but it came after death. So, it, too, should have been reported on a 1099-MISC. But, I already filed those taxes last year. Can I still do something about that? Do I need to get the employer to do something for the 2022 income and file an amended return or something?
I also don't see that TT filed a 1041. It was a 1040-SR, I guess because my spouse was 65. We had a revokable trust together, married many decades, and live in AR. I got everything. So, was I supposed to file a 1041?
So let's go back up top.
Wages earned and paid in the year the person died are reported on a w-2 and are subject to social security and medicare tax, even if the person died before the paycheck was received.
Wages that were earned before a person died, but paid in the tax year after they died, are reported on 1099-MISC and are not subject to social security and medicare tax.
You originally reported your spouse died in 2022, so any wages or bonuses paid in 2022 are properly included in his 2022 W-2 and are reported on your joint 2022 tax return. It is only the "small bonus" paid in 2023 that should be on a 1099-MISC.
Also, I am trying to open a TT pdf to look at the 2022 tax return, and it keeps thinking I am going to a website it can't find. So, I tried to save another copy directly from TT, and it still thinks I'm going to a website. What is going on? I am on my spouse's Windows computer. I'm an Apple person. So maybe I haven't associated the correct app or something? What can I do to open a TT pdf on Windows?
@CindyKR wrote:
Also, I am trying to open a TT pdf to look at the 2022 tax return, and it keeps thinking I am going to a website it can't find. So, I tried to save another copy directly from TT, and it still thinks I'm going to a website. What is going on? I am on my spouse's Windows computer. I'm an Apple person. So maybe I haven't associated the correct app or something? What can I do to open a TT pdf on Windows?
Not sure on this one. You need to download the PDF to a local file. Once downloaded as a local file with type "PDF", it should open in Acrobat or whatever built-in viewer Windows has. If you download the tax date file (file type is .tax2022) then it won't open anywhere unless you have Turbotax 2022 desktop version installed on your PC.
You're in Turbotax Online, trying to download last year's return as a PDF?
Can you help with this one?
Sorry, I'm confused. I was reading from Publication 559, and it said the following:
"Income To Include
The decedent's income includible on the final return is generally determined as if the person were still alive except that the tax period is usually shorter because it ends on the date of death. The method of accounting regularly used by the decedent before death also determines the income includible on the final return. "
So, doesn't that mean if my spouse died on the 3rd week of the month and I received the last check on the last day of the month that that income should have been reported separately?
I was on TT CD last year. I am just totally confused on this Windows computer. I see now that I had another pdf of the same file open as a Chrome file. I just can't seem to figure out how to get it to open differently. But, anyway, it is open now. Sorry for that.
I started online this year, but I didn't like that I can't see my forms. So, I ordered the CD. I am going to switch to it as soon as I figure this out.
Now I'm in a dilemma because I need to file by Jan 31 in order to avoid a penalty for late payment of estimated taxes because I was late 2 days since I didn't know I needed to do that. So, if I have to wait for the employer to send me the proper form, I won't make the deadline. I wonder if I should go ahead and file by the 31st, or if I should wait for the right form.
If I need to file a special form 843 to get a refund, will TT do that for me? How do I make it do that?
Sorry, I am still looking at Pub 559 pages 14 & 15 and it seems to say that Federal tax should NOT have been withheld from my spouses final paycheck received in the year of their death, but after the date of death. It says it should have been reported on a W-2 (if I'm reading it right), but only Social Security and Medicare should have been withheld, not Federal taxes. And, the NET Income for 2022 should have been reported on a 1099-MISC. That is what one of the links you provided said, too. I've included the quote from Publication 559 below.
I have no idea if that would be the case for Arkansas, too. Please tell me if I am reading it incorrectly. If so, then it seems I need to request a refund for the taxes withheld and file a change to my 2022 taxes. But, it's not clear to me if the change in forms makes a difference on how much tax I would owe for 2022, or for 2023.
"Wages. The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. The income isn't reduced by any amounts withheld by the employer. If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement.
Wages paid as income in respect of a decedent aren't subject to federal income tax withholding. However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. These wages aren't included in box 1 of Form W-2.
Wages paid as income in respect of a decedent after the year of death aren’t generally subject to withholding
for any federal taxes."
With regard to 2022, it doesn't matter. Technically I think you are correct, but it would not have changed the taxes owed. Even if the wages paid after death were included in the W-2 for social security and medicare tax (boxes 3-6) but not as taxable wages (box 1) and were instead reported on a 1099-MISC in box 3, the federal taxes owed at the end of the year on joint return will be calculated based on his total income, your total income, and all your combined deductions and credits. The 1099-MISC income is still subject to federal income tax. The only difference (had the employer done it exactly correctly) would be that there would have been little less withholding in his W-2 box 2, but the taxable income would have been the same, meaning you would have owed a little more or gotten a smaller refund when you filed.
Pushing this issue and getting a corrected W-2 and 1099-MISC will mean you have to file an amended 2022 tax return but it won't change the tax owed or refund amount by a penny.
For 2023, the situation is slightly different, and if you report the W-2 as-is and don't get it corrected, you would lose out on the social security and medicare tax, however much that is.
OK, So it sounds like I should just go ahead and prepare my return for 2023 and get it filed by my penalty-free deadline tomorrow, pretending I got a 1099-MISC, and adding the Fed and State Tax.
I already sent the company an email asking them to send me that form. So, if they send me the 1099-MISC and the money, though, then how much I paid for taxes won't be correct. So, what should I do about that?
Also, Back to another question, was TT filing my 2022 return as a 1040-SR correct. I didn't need to do a Form 1041, right, because it was a joint trust and I am the spouse?
Why are you introducing the word "trust"? That is a completely separate and much more complicated topic.
I do not recommend you file today. I recommend you wait for the company to either cancel the W-2 and issue a 1099-MISC, or refuse to do so. You giving the company a fair chance to correct their mistake may help you if the IRS starts asking questions about the missing W-2.
Your state and federal income tax will be the same, whether the income is reported as W-2 wages or 1099-MISC income. The only thing that is different is how you get a refund of the social security and medicare withholding.
The reason I wanted to file by tomorrow is because I accidentally missed by 3 days the Jan 15 deadline to pay 4th quarter estimated taxes. Because I've never paid estimated taxes, I didn't think about that in time, and I just converted a Traditional IRA to a ROTH in the 4th quarter. My percentage of taxes in 2022 on our joint return was zero because I wasn't working. So, it may be that I don't have a penalty anyway. I'm unclear on that. But, I was trying to avoid the penalty altogether, if there is one, by filing by Jan 31st. I have no idea how to calculate the penalty to know if it is worth waiting for the employer to correct this issue with the wrong form.
If your share of the 2022 joint tax liability was zero, zero is the amount that you will use for the safe harbor, resulting in no underpayment penalty no matter how much tax liability you have for 2023.
Things were chaotic and extremely stressful, and I did end up filing my taxes on 1-31-24. I understand that may have complicated my return since my spouse's employer did not send me the correct form, but that is what I did to avoid an under-payment penalty because TT seemed to indicate I needed to do that and I was afraid not to considering both the Federal and State estimated taxes were late.
Meanwhile, on Friday afternoon, my spouse's employer finally responded to me about the bonus reported incorrectly to my spouse in 2023 and that had all the taxes removed including fed, state, Medicare, and Social Security. Here is part of their response:
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"Payroll will correct [your spouse's] 2023 W-2 to zero earnings and taxes. We will send you a copy of the W2c (correction) once it has been processed.
Once you provide us with a W-9, we will request AP to issue a check for the taxes withheld in 2023. The AP check and 1099-MISC form will be dated 2024."
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However, I already filed my taxes as if I received the income in my name and ssn on the appropriate 1099-MISC. I reported the amount on the W-2 Box 1 as the amount in Box 3 of the 1099-MISC. And, the fed and state taxes that were reported by the employer on the incorrect W-2 for my spouse, I reported on TT as my 1099-MISC taxes in Box 4 and Box 16.
The employer is wanting to send me a corrected W-2 for 2023, I guess to show that my spouse did not have earnings this year. But, they failed to say if they would send me a 1099-MISC for 2023 in my name and SSN.
Q1. Should I insist (or clarify) that they send me a 1099-MISC for the 2023 tax year in my name and SSN? What if they refuse?
And, they want to send me the refund of the Medicare and social security taxes as income to me in 2024.
Q2. Is that the way it should be handled?