How do I deal with Bonus from deceased spouse's employer in year I can't count them on my taxes?

[CindyKR]

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?

[CindyKR]

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. 

[CindyKR]

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?

[CindyKR]

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."

[Opus 17]

@CindyKR 

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. 

[CindyKR]

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?

[Opus 17]

@CindyKR 

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.

[CindyKR]

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.

[dmertz]

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.

[CindyKR]

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:  
-------

"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."

-------
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?

[DianeW777]

Here are the answers to your questions. Please accept my sympathies to you.

Q1. You can try, although you would have no issue with explaining to the IRS should they ask at any point.  You can also choose to nominee it to yourself, but again I would not be too overly concerned about it.  It's already on your tax return as it should be.  See how below.

Q2. Yes, it is the way it should be handled.  They would be refunded those taxes as an employer, when the record is corrected and they should return the funds to you.  You will report the refund of medicare and social security taxes as income in 2024 which I would guess is not substantial.

Nominee returns. 

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received).  You must also furnish a Form 1099 to each of the other owners. 

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

• On each new Form 1099, list yourself as the payer and the other owner, as the recipient. On Form 1096, list yourself as the nominee filer, not the original payer.  The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

The forms filed with the IRS should be the red copy so if you don't have a color printer, go to the IRS website and order the forms here:

• Form 1096
• Form 1099-MISC

@CindyKR 

[Edited: 02/13/2024 | 9:23 AM PST]

[CindyKR]

Thank you for your condolences. It's hard...

Also, sorry, but I'm a little confused by all that about a Nominee and the 1099 and 1096. I'm not sure any of that applies to me. This was all my spouse's income, but it belongs to me. It all went to me both by law and/or because we had a living trust.

The Medicare and SS taxes that need to be refunded because my spouse's employer erroneously withheld them and used a W-2 to report them to the IRS will be corrected and the funds will be sent to me on a 1099-MISC in my name for the 2024 tax year, which will get reported on my taxes just like I reported them for 2023.

And, I did not file a tax return for my spouse because the are gone and I had to file using the single status this year. So, I'm not understanding where the nominee stuff comes in since I already reported the income as mine on a form 1099-MISC. Also, I use TurboTax, and I don't see that a form 1096 was filed for any reason.

The way it stands now, if the employer sends a corrected W-2 to eliminate all the income and taxes for them and attributes them to me on a 1099-MISC, it seems to me I will be done with the 2023 taxes because that is the way I already reported it. And, the 2024 taxes will just be a matter of entering the 1099-MISC as normal. 

Am I missing something?

[CindyKR]

Oh. Are you saying that if the employer didn't correct the W-2 and send me the 1099-MISC then I would go through the process of submitting forms to be the nominee for the funds?

If that is the case, do I need to do anything about the 2022 tax year? They messed up and reported the final paycheck in my spouse's name instead of using the correct 1099-MISC. I knew nothing about that then because I filed a joint return and it seemed like every other year, not realizing the law said my spouse's income was supposed to go to me at that point, and that fed and state taxes weren't supposed to have been withheld But, the employer does not want to correct that, and I paid taxes like normal. So, I'm just wondering if they won't correct it, do I need to do anything? Another tax expert in the comments said it really didn't matter because my fed taxes would be the same. I'm not sure that would have been true on my state taxes, but I also think that it is complicated and confusing going backward, and in the end it seems it would just cost me time and money to send an amended return, but I doubt anyone really cares.

[CindyKR]

As an aside, I would like to be able to use bold like you did. How can I do that?

[DianeW777]

No, I am only referring to the 1099-MISC that came to you with his social security number (SSN).  Also, it seems like the only issue is for 2023 for the W-2 that is being corrected.

I am unable to explain on your side how to use bold print.  My only suggestion would be to print it in MS Word, then paste it into Community.

@CindyKR