Death doesn’t cancel a final responsibility: paying income taxes. A decedent’s executor must file one last income tax return for the deceased if the deceased’s income surpassed a certain threshold. And even if a return isn’t required, a return may be necessary anyway to obtain a refund. The executor must take into account all the decedent’s income — there may be a wide range of wages, Social Security and annuity payments, for example.
The decedent’s marital and parental status is key, as there are special rules for families:
- A surviving spouse may file a joint tax return for the year of the deceased spouse’s death. If the spouse remarries during that year, however, a “married filing separately” return for the deceased taxpayer should be filed.
- A surviving spouse who has a dependent child may get an income tax break for two tax years after the death. A surviving spouse who qualifies for a special filing status, called a qualifying widow(er), can pay the tax rate that applies to married couples, which may mean a smaller tax bill. (However, this status cannot be used in the year of the spouse’s death.) To be eligible, you must have (1) been entitled to file a joint return with your spouse for the year of death, (2) not remarried before the end of the current tax year, (3) had a child who qualified as a dependent and (4) provided more than half the cost of maintaining your home, the principal residence of the child.
What forms should you use? Start with the familiar Form 1040 for a federal income tax return for the deceased person. If you’re the executor, you sign the form in the capacity of estate representative. If you’re the surviving spouse and file a joint return, sign it yourself, adding after your signature the words “filing as the surviving spouse.” An executor who is appointed before the return is due needs to sign as well.
If there’s no surviving spouse and an executor hasn’t been appointed by the court, whoever has taken charge of the deceased person’s property signs the return as a personal representative.
Income earned by an estate or trust is reported on IRS Form 1041 and the estate or trust may need to file a state income tax return for estates and trusts.
As with any other income tax return, the deceased person’s tax return is due on April 15 of the year after the year of the death. If the deceased person didn’t file a tax return for the prior year, you’ll have to file that tax return as well. There’s no extra paperwork to claim a refund for a surviving spouse on a joint return, but there are additional forms in other situations.
If you’re not sure if your loved one’s estate or trust will be subject to any taxes or if you’re not sure whether what you have inherited will be subject to taxes, consult with legal and financial professionals, as settling an estate can be complicated.