Taxes on Death Benefits

[TiaDav718]

I am receiving a death benefit from my dad who passed away in New York. There is a 20% withholding that is being taken out prior to the lump sum payment. Am I required to pay additional taxes when tax season comes around? Or does the 20% withholding considered taxes paid on the lump sum benefit? Outside of completing the 1099R am I required to submit any additional documentation? 

[VolvoGirl]

The 1099R will add to your total income and may push you into a higher tax bracket.  So the 20% withholding may not be enough.   Or you will get a refund.  Just enter the 1099R on your tax return.  You will get credit for the withholding taken out like from withholding on your W2.  

[conniem123]

Hi TiaDav718

I am sorry for your loss.  You will receive a Form 1099R by January 31, 2024.  The Form 1099R will show key information that you will enter in your TurboTax account when you prepare your 2023 tax return.  One of the items on the Form 1099R is Box 7, which is a code that will indicate the type of distribution.

The 20% that is being withheld is an estimate of taxes.  Of course it is not known at this point your other income for 2023 and your tax rate.  Similar to working a job and you have tax withheld from your wages each pay period, they are basically "set aside" for you to pay your taxes when you file your tax return.

Once you receive your Form 1099R, along with your other tax documents, you will prepare your 2023 tax return.  You will enter all your income, including the distribution reported on the Form 1099R, then your tax liability is calculated, and the withholdings from all your sources decrease your tax liability.

If withholdings from all sources are greater than your tax liability, you will receive a tax refund. 

You are not required to submit additional information with your tax return; based on entering the Form 1099R TurboTax will generate your tax return.

I hope you find this helpful!

Connie

[TiaDav718]

Is there anyway I can calculate or find out what the percent should be prior to tax season? I want to be sure I’m ahead of things being that I usually file my taxes myself. 

[conniem123]

Yes.  If you used TurboTax to prepare your 2022 tax return, you can access your tax account by clicking on Add A State from the Tax Home.  Be very careful not to change any information that has already been entered.  Then click on Federal/ Other Tax Situations/ Other Tax Forms.  Answer no to W-4, then the next screen Yes, you want to review your income and deductions.  TurboTax will take you screen by screen through so you can enter in your estimated 2023 income, deductions, and withholdings.

Hope this is helpful!

Connie