W-2 for deceased taxpayer

[peggysioux]

Taxpayer died in 2009 and wife filed return as MFJ and noted on 2009 tax return that taxpayer was deceased. In 2010, deceased taxpayer received a W-2 due to a settlement. Box 1 of W-2 is only 48.94. How should the W-2 be handled? Being so small and below the requirement to file, I would think we don't need to do anything with it. But being the wife received the funds (a total of $244.68 with interest and penalties), I was unsure if wife had to claim on her tax return.

[Burke]

The surviving spouse or estate is supposed to claim the funds. They reported it incorrectly. But as you say, it is so small, it is not likely to make much difference. However, you mention interest? So that probably was taxable as well.

[peggysioux]

W-2 for deceased taxpayer

Total settlement was $244.68 with the following breakdown:

Interest: 97.87
Penalties 97.87
Wages 48.94
Taxes w/h $19.75

I considered just claiming the $244.68 as misc. income; but being spouse is claiming the income, can she also claim the taxes paid even if the W-2 is under deceased husband's social security #?

[Burke]

Unfortunately, no. You cannot file a tax return for a deceased person after the year of death. They will not credit the taxes to her. The payor needs to be contacted. He has two choices: refund the withheld taxes himself to the spouse, and adjust his next 941. Or re-issue a corrected form to the spouse (it should have been 1099MISC, Box 3) and show the taxes withheld on that form under the spouse's SSN, so she can claim the withholding. Did he withhold FICA/MC on the W-2? He should not have. I suppose if he did not, and simply issued a corrected W-2 to her it wouldn't make any difference on the return, even though that is not the correct way to handle it. The interest should have been on 1099-INT.

[peggysioux]

W-2 for deceased taxpayer

If spouse doesn't want to contact the employer asking for a correction being such a small amount and I advise her what should be done, would I be in compliance if I submitted tax return without listing the income from the inaccurate W-2?

The employer did withhold SS & medicare from wages from the deceased taxpayers W-2.

[Burke]

If spouse doesn't want to contact the employer asking for a correction being such a small amount and I advise her what should be done, would I be in compliance if I submitted tax return without listing the income from the inaccurate W-2?

No, not really. She is supposed to list the income, but she cannot claim the taxes withheld since they are under his SSN. (And those FICA/MC taxes should also be refunded to her from the employer). He really goofed up on this one. You can refer him to Instructions for Completing Forms W-2 for a deceased person as a reference.

[peggysioux]

W-2 for deceased taxpayer

Thank you for answering my many questions!!

Peggy Sioux