Pension Payment Clawback

Forum|Forum|1 year ago
July 16, 2024
3 replies
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My mother passed in Dec 2023. I am in the process of filing her final return (hopefully). She had two small pensions that clawed back the money in January. Do I have to file a return AGAIN next year or how do I deduct those claw backs on her 2023 return?

Opus 17

Level 15

Is the amount more or less than $3000?

dmertz

Level 15

[Edited]

Since she died in December 2023, it seems that the claw-back would be for January 2024 pension payments, not 2023 pension payments. If so, nothing would need to be done regarding the claw-back because the payers would not be issuing any 2024 Forms 1099-R reporting the income.

maoakdenAuthor

Level 2

Thanks for your answer, but didn't say she got any payments in Jan. These clawbacks are for December payments.

Opus 17

Level 15

What we need to know is the timing, and the forms, and how it was recorded.

1. For example, suppose pension payments are made on the last day of the month but only for months where the recipient is alive. Your mother received $1000 per month in 2023, and received a 1099-R showing $12,000 of income. But, in January the payor asked for the December payment back. In that case, the 2023 1099-R shows income of $12,000 (and she pays tax on $12,000) but $1000 was required to be repaid.

In this situation, there is a possible tax remedy if the amount repaid is more than $3000, but if the amount is $3000 or less, there is no remedy, the money is just gone.

2. On the other hand, suppose payments are made on the first day of the month for months where the recipient is alive. Your mother received $1000 per month in 2023, and received a 1099-R showing $12,000 of income. She also received $1000 on January 1, 2024. That January payment was later clawed back.

In this situation, the 1099-R for 2023 and the tax return are correct, she received $12,000 and reported $12,000. For 2024, she received no income ($1000 minus the clawback). She should not receive a 1099-R for 2024. If she does receive a 1099-R for 2024 in the amount of the original payment, you can deal with that next year. But there is nothing to do now but wait and see what happens.

maoakdenAuthor

Level 2

Died Dec 17th. Payment recd for $3303 on Dec 20th. That payment was clawed back in January, BUT the 1099-R still reflects 12 monthly payments of $3303.

Here is my question again:
1. I'm supposed to file her 2023 taxes with the higher amount and a larger tax burden? Then wait to file 2024 taxes for a refund which won't happen, because I'm not allowed to file 2024 taxes for a person who died in 2023
2. OR is there a way to deduct the clawback?

dmertz

Level 15

@maoakden wrote:

Thanks for your response. I appreciate you taking the time to share. I was told by a tax preparer I couldn't file a 2024 return becauseshe passed in 2023. Obviously they were wrong. Thanks again.

That's a little complicated. If a person has income after their death, that income is received by a separate legal entity known as the estate, and the estate must file tax returns. (One example would be an author, whose books continue to sell, and they have an estate to manage royalties and rights for the work.)

I don't actually know what you need to do in this situation, where the person is due a credit but does not have after-death income. For a living person, you would use the IRC 1341 claim of right. Possibly, you would have to file an estate tax return to claim the credit. That uses a different version of turbotax and requires a different tax form (form 1041), and the estate must have a separate tax ID number, not the person's SSN. It could be that the cost of legal advice is more than the credit would be. (Depending on her income level in 2023, the credit would be between $300 and $1000.)

You may want to continue to seek advice.

A Google search produced this reference from 1964 that seems to address this situation:

https://ideas.dickinsonlaw.psu.edu/cgi/viewcontent.cgi?article=2367&context=dlra

I would first attempt to get the payer to correct the Form 1099-R to show only 11 months of pension payments. Absent that, I think that the estate would have to deal with this since the repayment was essentially a claim against the estate. It seems that despite section 1341 not addressing this situation, the tax court has allowed the estate to report a claim of right repayment.