Tax for compensation paid after death tax-year?

My son died in Nov 2012. Most of his earned income for 2012 was reported on a 2012 W-2 and included in his final 1040/540(Calif) tax returns.

However, his earned income for Nov 2012 was paid in Feb 2013. The payment went directly to his parents, the small-estate beneficiaries. (There was no formal probate court proceedings.) The earned income was not reported on a W-2 or 1099.

Should this be reported as taxable income?

If so, in whose name/SSN (my son's or his parents') and on what tax returns (1041/541 for the son's estate or 1040/540)?

My tentative conclusion is: it is not taxable income, either to my son or to his parents. But I am surprised by that conclusion.

PS: I know we can "get away with" not reporting any taxable income since there was no reporting of it to the IRS (e.g, W-2). But I'd like to do the right thing.

Reply to
qguy
Loading thread data ...

On Monday, March 31, 2014 9:44:52 AM UTC-7, qguy wrote: | My son died in Nov 2012. Most of his earned income for 2012 was reported on | a 2012 W-2 and included in his final 1040/540(Calif) tax returns. | However, his earned income for Nov 2012 was paid in Feb 2013.... | The earned income was not reported on a W-2 or 1099.

I'm sorry for your loss.

I would first try to find out if the November 2012 income was, in fact, reported on the 2012 W-2 even if only paid out in 2013. If you have pay stubs that may help, although depending on how they are organized, it may not be easy to figure out the federally taxable income.

Reply to
taruss

Payments of compensation made in the year after the year of death of the employee should be reported on a 1099-MISC. The name and taxpayer ID of the recipient (beneficiary or the estate) should be used on the

1099-MISC. I have seen incidents where the payor used the decedent's name and SS# because they did not have the recipients taxpayer ID #. As someone else has already said, are you sure that the payment was not included in the final W-2? It is also possible that there is a 1099-MISC that never got mailed or was mailed to the wrong address or was not created because of a missing taxpayer id number.

The only way to know whether you have taxable income is to ask the payor about it.

All that being said, if it is taxable income it is called IRD, Income In Respect Of A Decedent. As the right to the payment passed to the parents and payment was made to the parents, it would go on Line 21 of the parents Form 1040 for tax year 2014.

Reply to
Alan

Thanks for the reference. I wish I had seen this in Pub 559 earlier. Just mailed my tax returns.

However, with the addition of the IRD, it does not change the bottom line: still zero taxable income, federal and state.

So there is no need to file amended returns, right?

(I might keep a copy for my own purposes, since it does change the AGI, of course.)

Reply to
qguy

In this instance, there is no need to amend if the tax is not going to change.

Reply to
Alan

Thanks again.

Reply to
qguy

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.