Deceased Employee W-2: Isuues and Questions

[Grace]

Taxpayer died on January 24, 2015. No will and no designated beneficiaries.

2015 W-2 includes wages earned prior to death as well as accumulated sick and vacation days pay.
Rounding the #s on the W-2, it looks like this:
Box 1: 75,000 Box 2 (FITW): 12,358
Box 3 (SS Wages): 30,000 Box 4: 1,860
Box 5 (Medicare Wages): 30,000 Box 6: 435

The attorney had a CPA prepare the 1041 and it does not include the amount received by the estate for the accumulated sick and vacation days payment.

I'm preparing the decedent's final 1040.

Based on what I have read, and unless it's different for government employees, the accrued sick and vacation days payments should have been reported to the estate, under the estate's EIN, on a 1099MISC, in Box 3. And since it was paid in the same year of the employee's death, the employer should have withheld Social Security and Medicare taxes on the payment and reported them only as Social Security and Medicare wages on the employee's W-2.

How should I handle this? Report the W-2 "as is" on the decedent's final 1040 and nominee out to the estate the amount of accrued sick and vacation days payments and then have the 1041 amended? Or, if the beneficiaries of the estate received this money from the estate, could I just nominee these amounts out to the beneficiaries? In either case, what to do about the FITW?

Thanks in advance for any input, feedback and/or advice.

Grace

[Roland Slugg]

Hello Grace. The correct way to report everything is as you summarized it in your post.

I am wondering, however, how the W-2 could show $75,000 in box 1 but only $30,000 in boxes 3 and 5. That makes no sense. The amount in box 1 should be less than the amounts in 3&5 by the amount of accrued wages, vacation and sick days that were paid post-DOD. That amount, in turn, should have been reported on a Form 1099-MISC, in box 3, and reported on the recipient's tax return ... apparently the decedent's estate.

[Grace]

Thanks, Roland

I got a break down of the W-2. It looks like only $15K was wage income prior to DOD. The rest of the amount reported in Box 1 was accrued wages, unused sick and vacation time and some other miscellaneous items yet to be identified.

The discrepancy between boxes 1, 3, and 5 was due to sick pay. According to Pub 15-A "sick pay paid after employees death is not subject to Social Security nor Medicare taxes"

I really opened up a can of worms here. When I got the W-2, it just didn't seem correct. So much money earned so early in the year (DOD 1/24/15). Should I have not delved into it? In other words, did I go too far? I am such a stickler for details.

Now I have got to bring this to the attention of the CPA who prepared the 1041 and filed it around 3/1/16. The Estate's on a calendar year. 2 weeks from today to get it amended.

Grace