Vacation Pay for deceased taxpayer

[JT2307]

Deceased taxpayer received a 1099-misc box 7 for vacation pay issued after his death. At the time of his death he was collecting unemployment, laid off from the company.

My first thought is to enter it on line 22 other income.

Thoughts?

[S T]

Would this be "income in respect of a decedent" you stating recieved after the T/P death

Specific Types of Income in Respect of a Decedent
This section explains and provides examples of some specific types of income in respect of a decedent.

Wages. The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. The income is not reduced by any amounts withheld by the employer. If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement.

Wages paid as income in respect of a decedent are not subject to federal income tax withholding. However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. These wages are not included in box 1 of Form W-2.

Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxes.

How To Report
Income in respect of a decedent must be included in the income of one of the following.

•The decedent's estate, if the estate receives it.

•The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it.

•Any person to whom the estate properly distributes the right to receive it.

You can read more at http://www.irs.gov/publications/p559...blink100099571


Sandy

[S T]

Here is my other thought and/or question - why the delay in the payout if the T/p was laid off?
Seems like those accrued benefits should have been paid at the lay off.
Was the deceased taxpayer previously prior to layoff classified as an employee on W-2 - I am thinking yes, if T/P was receiving unemployment.

Wondering why the Employer did not run it through payroll with the payroll deductions versus a 1099 Misc form?

Example I just received one on Work Comp and unable to return to work - Employer issued accrued vacation sick pay on a W-2 form.

Seems like your T/P's employer should process through W-2 wages, in absence of that line 21 subject to SE, but do see prior post on IRD

but if received after T/P death, should this not be income in respect of a decedent which then would be reported on a 1041

Sandy

[Roland Slugg]

Vacation pay should never be reported on a 1099-MISC. Vacation pay is accrued by and paid to employees or former employees or their estates, not to ICs. It should have been reported on a W-2. If paid in the same year the employee was still alive, the vacation pay is subject to social security and Medicare taxes. If paid in a later year, it is not subject to those taxes. I would suggest that your client contact the employer and see if it will issue a W-2 and a corrected 1099-MISC, showing $0 in box 7.

Correction: Some (but not all) of the above information is incorrect. See corrected info below.

[Burke]

The poster did not give us the date of death, nor the date the payment was issued. These make a difference in how it is reported. If paid after death, but in the same taxable/calendar year, it does go on the W-2 subj to FICA. It is shown in Box 3 & 5, but not Box 1. If the payment is made after the year of death, it does not go on a W-2. It goes on Form 1099MISC, but it should be reported to the beneficiary and/or estate under the appropriate SSN/EIN to whom it was actually made. It goes in Box 3. See the instructions for 1099MISC, page 3.

[Roland Slugg]

You are right, Burke ... if paid after the year of death, such payments are, indeed, reportable on for 1099-MISC, but in Box 3, not Box 7 as indicated in the OP. Thanks for correcting my earlier error.

[JT2307]

Yes it was issued after his death and he was laid off at the time. I will have to see if the employer will issue a corrected 1099.

Thank you.

[TAX4US]

I have one of these messed up w-2 similar circumstances. No problem where income belongs just trying to figure out how to to get the withholding back since tp died previous year with w-2 showing up in next year. TP was single.

[Burke]

And you have a problem. You cannot file a return for the deceased for the year after death. It will be rejected. Only solution to that is a corrected W-2, and then a FORM 1099MISC showing the withholding under the SSN/EIN to whom it was sent.

[Burke]

Yes it was issued after his death and he was laid off at the time. I will have to see if the employer will issue a corrected 1099.

Thank you.

The fact that he was laid off at the time is immaterial. Also, you did not say how he was filing. Is it MFJ? You mentioned putting on Line 21. Whose return? If no withholding was done, it can be handled relatively simply. If it was paid in the year he died, then just put it on the return, line 21.

[peggysioux]

Wages to deceased taxpayer

I have a similar issue; however, taxpayer died in 1st Quarter of 2014 and company of taxpayer issued 1099-Misc to deceased taxpayer's spouse with figure in box 7 and company advised wife that this was husband's wages. Being 2014 is year of death, shouldn't the amount be included in W-2? At first I thought maybe the amount included in 1099-M was also added to box 3 and 5 of W-2 issued to taxpayer, but the difference between box 1 and 3 & 5 don't total the amount in box 7 of the 1099-M (too small of amount). However, there is a large difference between box 1 and 3 & 5 that I can't account for so I a totally confused. The company is a VERY large global energy company who I would assume knows how to properly handle the employee's last wages.

Should I include the 1099-M amount on line 21 of 1040 and if so, what info should I supply to IRS so that they don't send a notice asking for SS and Medicare on the 1099-M amount?

Any help would be much appreciated.

Peggy Sioux

[Burke]

The amount should have been included on his W-2 and FICA withheld. So technically it is subject to social security tax. But the company should have paid 1/2 of it. You can put it on Line 21, and ignore the SS tax on it. But that makes it subject to income tax. I don't know if ignoring the SE tax won't come back later to haunt you, since they reported it in Box 7. I think you will just have to wait and see what happens down the line. If it was a small amount, may not result in anything later. But it won't get credited to his Social Security earnings either, whether that matters. Might take an act of Congress to get the company to correct, but you could try. Could you file a substitute Wage & Tax Statement? Then file the 1099 with an offsetting entry on C-EZ?

[Roland Slugg]

Yes it was issued after his death.

Are you reading the above replies carefully? We know the vacation pay was paid after his death. But it makes a difference if it was paid in the same year he died or in a later year. The reporting rules as well as the taxes that apply are very different.