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W-2 income in respect to a decedent with withholding

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Level 3

Hey everyone, so spouse died in 2018, surviving spouse got a 2019 W-2 for deferred comp payment and RSU's liquidated.  The company withheld taxes (not supposed to).  If the company had not withheld taxes it is just a matter of putting the income on the return with a letter of explanation.  Question is what do I do with the withholding the company has done in this case?

 

Thanks in advance!

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Highlighted
Level 12

"Deceased employee's wages.

 

When an employee dies during the year, you must report the accrued wages, vacation pay, and other compensation paid after the date of death. If you made the payment in the same year the employee died, you must withhold social security and Medicare taxes on the payment and report them only as social security and Medicare wages on the employee's Form W-2 to ensure that proper social security and Medicare credit is received. On the Form W-2, show the payment as social security wages (box 3) and Medicare wages and tips (box 5) and the social security and Medicare taxes withheld in boxes 4 and 6; do not show the payment in box 1 of Form W-2.

If you made the payment after the year of death, do not report it on Form W-2 and do not withhold social security and Medicare taxes.

Whether the payment is made in the year of death or after the year of death, you must also report the payment to the estate or beneficiary on Form 1099-MISC. Report the payment in box 3 (rather than as non-employee compensation). See the Example that follows. Enter the name and TIN of the payment recipient on Form 1099-MISC. For example, if the recipient is an individual beneficiary, enter the name and social security number of the individual; if the recipient is the estate, enter the name and employer identification number of the estate. The general backup withholding rules apply to this payment."

From:

https://www.irs.gov/instructions/i1099msc#idm140364700438320

 

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"Level Up" is a gaming function, not a real life function.

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7 Replies 7
Highlighted
Level 11

The W-2 has the decedent's name and SSN?

Ask for a corrected W-2?

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Highlighted
Level 10

Not my area of expertise but my understanding is that wages paid in the year after death should be reported on a 1099-MISC in box 3 issued to the recipient (often the estate) and not the deceased.

I'd kick this back to the employer and have the W-2 corrected to $0 and a 1099 issued.

Highlighted
Level 12

"Deceased employee's wages.

 

When an employee dies during the year, you must report the accrued wages, vacation pay, and other compensation paid after the date of death. If you made the payment in the same year the employee died, you must withhold social security and Medicare taxes on the payment and report them only as social security and Medicare wages on the employee's Form W-2 to ensure that proper social security and Medicare credit is received. On the Form W-2, show the payment as social security wages (box 3) and Medicare wages and tips (box 5) and the social security and Medicare taxes withheld in boxes 4 and 6; do not show the payment in box 1 of Form W-2.

If you made the payment after the year of death, do not report it on Form W-2 and do not withhold social security and Medicare taxes.

Whether the payment is made in the year of death or after the year of death, you must also report the payment to the estate or beneficiary on Form 1099-MISC. Report the payment in box 3 (rather than as non-employee compensation). See the Example that follows. Enter the name and TIN of the payment recipient on Form 1099-MISC. For example, if the recipient is an individual beneficiary, enter the name and social security number of the individual; if the recipient is the estate, enter the name and employer identification number of the estate. The general backup withholding rules apply to this payment."

From:

https://www.irs.gov/instructions/i1099msc#idm140364700438320

 

*******************************
"Level Up" is a gaming function, not a real life function.

View solution in original post

Highlighted
Level 1

It is highly unlikely you will succeed in compelling the employer to file amended W-2's. You may have better luck contacting the Taxpayer Advocate and have the IRS change their records that way.

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Level 15

"You may have better luck contacting the Taxpayer Advocate and have the IRS change their records that way."  Doubt that's going to happen.

I think OP probably figured something out in March.


ex-AllStar
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Level 11

Not to mention, that's so far from the TA's realm of meaningful work that it might as well be on another planet.  

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Level 3

Yup,

 

Basically read the company's payroll dept the riot act then the laws on how to handle this.  They ended up negating the W-2 and issuing a 1099MISC in the survivors SS#.  They are still working on refunding all the withholding, Social Security, and Medicare taxes.

 

Thanks for all the responses!