Social Security Survivor's Benefits Taxable

[zeros]

Wife is receiving survivor's benefits. She is 44. Would this income be subject to tax like ordinary benefits for retirement?

[ChEAr$]

Wife is receiving survivor's benefits. She is 44. Would this invome be subject to tax like ordinary benefits for retirement?

Net benefits are on a SSA 1099, aren't they? There's the clue.

[Koss]

Yes

Yes. There are three types of social security benefits, and they are all taxable:

(i) retirement (old age)
(ii) survivor
(iii) disability

As noted by ChEAr$, these benefits appear on Form SSA-1099.

The confusion arises on two points:

(i) SSI, or Supplemental Security Income, is paid by the Social Security office, but it is not the same as social security benefits, and it is not taxable. SSI is a type of welfare, or cash assistance, for poor people. No Form SSA-1099 is issued for these benefits.

A lot of people get both Social Security and SSI. They get two separate checks each month. So one is taxable and the other isn't. But anyone who qualifies for SSI is not going to have any other meaningful income (SSI is for poor people, remember?). So they won't have to file a return. For those who receive SSI, the end result is that none of their social security benefits are taxable, due to their income level.

(ii) Children under 18 receive survivor's benefits when a parent dies. These are social security benefits, and they are taxable. In most cases, the check is made out to the surviving spouse, who is acting as custodian of the funds for the minor child.

The surviving spouse may receive two, or even three checks each month (for example, if there are two minor children). And she should get two or three different 1099 forms.

The survivor's benefits of the spouse need to be reported on the spouse's tax return, and they are potentially taxable, depending on what other income she has. For the survivor's benefits for the spouse, the 1099 will have the spouse's social security number as the recipient of the benefits.

But the survivor's benefits for the minor children probably don't have to be reported anywhere, because in most cases, the minor children have no other income and do not have to file a return. If the minor child is age 16, for example, and worked at McDonald's, and made only $2500 last year, they can file a return to get a refund of tax withheld. Technically, the social security benefits of the child should be reported on their tax return, but based on the income level, none of it will be taxable.

For the children, the 1099 form will have the name and SSN of the minor child.

I think it's a fairly common mistake for unsophisticated taxpayers to conclude that survivor's benefits are either all taxable in this type of situation, or that none of it is taxable.

Over the last 20 years, I've seen cases where the surviving spouse has insisted that her benefits are nontaxable, even though she made $35,000 at a regular job, and I've seen other cases where a previous year's return had been filed, and the survivor's benefits of the minor children, aged 4 and 6, had been reported on the surviving spouse's return. The checks were coming with the children's names, "in care of" the surviving spouse. Since she was cashing the checks, and using the money to support the children, someone concluded that the benefits were taxable to her. They aren't. They are income for the children, who had no other income of any kind.

And I've seen clients insist that none of their benefits are taxable because they're "on disability," and they don't understand the difference between Social Security Benefits and Supplemental Security Income.

BMK

[taxmom34]

good explanation, i just printed your response and will make copies for those who ask questions.

[JG EA]

Me too. I have a few printed items on this subject on file, but nothing so clear. I am always amazed at the generosity of board members to share their expertise with the rest of us.

Thanks Koss and to all the others that do the same.

[FEDUKE404]

Kudos to Koss

A well-written summary of the Social Security scenarios.

One side item: Remember that folks receiving SS/SSI benefits do need to consider such benefits when working on the dependency rules. ("But I didn't receive anything to help with Bobby's bills.....")

And my guess is that many of the Forms SSA-1099 end up in the round file.

FE