1099-NEC and 1099-MISC Deceased Husband

[KatFen5]

My husband died in August 2021.  I have received both a 1099-MISC and 1099-NEC from his employer, both have differing amounts on them.  When I tried to enter the 1099-NEC, turbo tax is now trying to create a business under my name.  This wasn't wages or income from a business, it was husbands final paycheck and vacation pay.  Did his employer fill out the form incorrectly?  They entered the amount into box 1, nonemployee compensation.

[PattiF]

The IRS instructions for a deceased employee's accrued vacation pay are to include the amount on a 1099-MISC. The vacation pay should not have been reported on a 1099-NEC,  but there is a way to enter the income without creating a business.

Here are the instructions to enter the 1099-NEC without creating a Schedule C business.

• Search for 1099-NEC with the magnifying glass
• Click on Jump to 1099-NEC link
• Click Add a 1099-NEC
• Enter the information on the form and follow the prompts
• On the page titled Guess what? You can deduct expenses for the example work, choose No I have no expenses to deduct
• Follow the prompts on the screen

I  am sorry for the loss of your husband.

[KatFen5]

Thank you PattiF, I appreciate you taking the time to answer and your condolences.  I was able to get a hold of husbands former employer, and they are sending a corrected 1099-NEC with $0 on it.  They explained, because I had previously worked there temporarily to help them get caught up on their titles, that the system automatically generated the 1099-NEC.  

[PattiF]

Thanks for letting me know that you will be getting the correct form. That's good.

[ameanguitar]

Hi,

I am in a very similar situation and have been pondering the 1099-NEC for several weeks now. My mother passed away June 2021 and I received her final check for vacation/sick leave soon after. I received the 1099-NEC to file on my 2021 taxes and it is a very significant amount of money. I was told by the Health Department where she worked that taxes were taken out of her final check, but I believe they would have only been required to deduct medicare/social security. I understand from this FAQ, how to enter the 1099-NEC without creating a Schedule C business, but my question is will this money be taxable? Sadly enough it was used to pay funeral expenses, which are also not tax deductible. Also, should the employer have sent a 1099-MISC instead? Thank you for your time!

[ameanguitar]

So sorry for your loss. My mother passed around the same time and I am in a very similar situation as you, so thanks for your inquiry.

[KrisD15 · Accepted solution]

Yes

The employer should have issued a 1099-MISC

You should also have received a 2021 W-2 in your mother's name if your mother was paid wages in 2021 and/or tax was withheld. 

Yes

The income is taxable income, but what tax and who pays the tax can depend on several factors:

According to the IRS:

• ", amounts paid to a former employee are subject to social security, Medicare, and FUTA taxes if they would have been paid even if the employment relationship hadn't terminated because of death or disability retirement. For example, a payment to a disabled former employee for unused vacation time would have been made whether or not the employee retired on disability. Therefore, the payment is wages and is subject to social security, Medicare, and FUTA taxes.

Amounts not subject to federal income tax withholding.

The following amounts, whether paid by you or a third party, aren't wages and aren't subject to federal income tax withholding.

• Payments after the employee's death. Sick pay paid to the employee's estate or survivor at any time after the employee's death isn't subject to federal income tax withholding, regardless of who pays it.

• Payments attributable to employee contributions. Payments, or parts of payments, attributable to employee contributions made to a sick pay plan with after-tax dollars aren't subject to federal income tax withholding."

A 1099-MISC can report many different types of income, which was confusing for the IRS; Therefore, the IRS brought back Form 1099-NEC (Non-Employee Compensation) for reporting ONLY Self-Employed income. 

The payroll department will need to correct the 1099-NEC and report a 1099-MISC. 

The instructions from PattiF are helpful for those who wish to use Schedule C-EZ rather than Schedule C. It also lets a Taxpayer use a lesser priced TurboTax program, but a 1099-NEC will always produce business income. 

I am also sorry for your loss and hope you have many fond memories. 

Asking for a corrected form is not the easiest thing to do I'm sure, but it is highly encourages since the IRS always looks for Self-Employment connected to a 1099-NEC and that means Self-Employment tax. 

Best to get it corrected now than deal with the IRS later. 

Link for more information

@ameanguitar

[ameanguitar]

Thank you for the response!!!

[KatFen5]

Kris,

Thank you for your reply, it is the right  answer.  Another reason it was vitally important that I get the corrected form was because I applied for survivors benefits at 60, as I have been taking care of my mother and hadn't worked for a few years.  One of the requirements for this is that a person hadn't worked the previous 2 years.  This incorrect 1099-NEC would have jeopardized my SS benefits because it would have appeared that I had worked in 2021.

Thank you

Kathy

[KatFen5]

ameanguitar,

Sorry for the loss of your mother as well.  I'd like to tell you, if your mother passed away due to Covid, or if Covid is listed as one of the causes of death on death certificate, you can apply for FEMA Funeral Fund and be reimbursed for the funeral cost.  It's an easy process to do.  Here is the link to the government page.  https://www.fema.gov/disaster/coronavirus/economic/funeral-assistance

[jokelley1]

I received a final check from my husband's vacation and accrued sick time.  This was reported with a 1099 MISC. This was reported with his SS number but in the box it says "Estate of his name".  They told me I would not have to pay taxes on this but when I put it in turbo tax it says I have to pay. A LOT! What am i doing wrong?  Do I need to report this or not?

[barb36]

KrisD15, I hope you can help with my question.  We have a 1099-NEC that we paid commission income to in the beginning of 2023.  We took no taxes out of his income. He passed away at the end of the 2023.  No income was paid to him after he passed away.  Do I send a 1099-NEC (like I normally would, since all the income was paid prior to his death) or do I put it on a 1099-MISC , box 3?

[LeticiaF1]

Yes, you need to issue a 1099-NEC like you normally would, because it was paid prior to death of the recipient.  A 1099-MISC would not be the appropriate form, because it is not used to report self-employment income.

@barb36 

[barb36]

Thank you!!  That's what I thought as it made the most sense to me.  I REALLY appreciate your help!!