Taxation of Deceased Paycheck - A summary

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
gavinsiu
Posts: 4470
Joined: Sun Nov 14, 2021 11:42 am

Taxation of Deceased Paycheck - A summary

Post by gavinsiu »

I thought I post this in the event you are unfortunately enough to have a love one die and receive their final paycheck because you are listed as a beneficary. Here are some things I have discovered:

* You only receive the final check if you are listed as a beneficiary, otherwise it goes to the estate. The check should have your name on it.
* The employer is required to withhold social security and medicare. If you notice that there is no social security withholding but there is medicare withholding, this mean the deceased has exceeded their social security withholding limit.
* If there are multiple beneificary, the withholdings may not appear on everyone's check. This may be just a employer specific thing though, so if you don't see withholdings, you may want to ask the deceased's payroll for clarification.
* Typically no federal and state tax is withheld. The recipient is responsible for the taxes. The check is not passed to you tax free. You may have to pay income tax on it.
* If the deceased lived in a different state than you, you must contend with taxes for that state. It is like if you worked for that employer in that state, that state gets first dibs on the taxes and you have to get a credit on your state for paying another state. You may have to do estimated tax on the deceased state. You will at least have to file a non-resident return.
* You do not need to withhold social security. The employer is required to withhold social security and medicare. This is not your responsibility.
* You will received a 1099-MISC where you will report it as other income on your taxes. Keep in mind I haven't received one so I can't say if I am correct.

So your plan of action.
1. Examine the check, make sure it's got your name on it. Check if personal information are correct.
2. Check the paycheck for withholdings. There should be no income fed or state withholdings. There should be social security and medicare withholdings, but social securiity may be blank if the deceased have maxed out their social security contribution.
3. Examine the amount and calculate if you will need to pay estimated tax. If the deceased was in a different state, you may have to pay estimate tax to that state.
4. When you get the 1099-Misc, use it to report your income on your taxes. If the deceased live in another state, expect to file a one-time non-resident return for that state.
Post Reply