Question on Payment from Social Security on Behalf of Deceased Parent

[bobandsherry]

My wife received a payment, split between her and her sister, for her father's final social security payment, the payment was returned to SS by the bank as he was reported as deceased. She has now received a 1099SM for the payment. Is this considered taxable income for her? If this was received by his estate he would have not paid tax due to his level of taxable income and would have passed to her free of taxes. Curious for those who have experienced this how they may have handled it for tax reporting.

 

[cathy63]

Whose SSN is in box 2 of the SSA-1099 / 1099-SM? If it's her father's number, then it's definitely not taxable income to her and the form needs to go to whoever will file her father's final return (if he had a filing requirement, which it sounds like he may not have).

If it's her SSN, then it either needs to be reported as income on your married filing joint (or her married filing separately) return; or she needs to get it corrected by SSA before filing a 2025 tax return. She can try calling SSA, but it may be easier to get it fixed with an in-person visit to an SS office. Don't ignore it. This is something that's easy for the IRS to catch when they cross-check forms with returns and they will send a letter, though it may take a couple of years.

Of course, depending on your other income, it's possible that this would be non-taxable on your return as well. If that's the situation, then she might make one call to SSA to see if they'll fix it easily and if they won't, just go ahead and include it on your return.

 

[Texas Proud]

Was this a normal monthly amount? If so, then it is paid back and nothing should be taxable...

I do think there is a death benefit (IIRC like $255, but could be way off)... this went to my mom's estate..

 

[bobandsherry]

Whose SSN is in box 2 of the SSA-1099 / 1099-SM? If it's her father's number, then it's definitely not taxable income to her and the form needs to go to whoever will file her father's final return (if he had a filing requirement, which it sounds like he may not have).

If it's her SSN, then it either needs to be reported as income on your married filing joint (or her married filing separately) return; or she needs to get it corrected by SSA before filing a 2025 tax return. She can try calling SSA, but it may be easier to get it fixed with an in-person visit to an SS office. Don't ignore it. This is something that's easy for the IRS to catch when they cross-check forms with returns and they will send a letter, though it may take a couple of years.

Of course, depending on your other income, it's possible that this would be non-taxable on your return as well. If that's the situation, then she might make one call to SSA to see if they'll fix it easily and if they won't, just go ahead and include it on your return.

My wife's SSN is on the 1099SM. Only reference to her father's SS# is in the box for claim reference. This is definitely taxable to us. Thanks for the suggestion.

 

[bobandsherry]

Was this a normal monthly amount? If so, then it is paid back and nothing should be taxable...

I do think there is a death benefit (IIRC like $255, but could be way off)... this went to my mom's estate..

This was the regular monthly payment to her father, returned by the bank as account was closed due to his death.

 

[cathy63]

My wife's SSN is on the 1099SM. Only reference to her father's SS# is in the box for claim reference. This is definitely taxable to us. Thanks for the suggestion.

It sounds like somebody filed an SSA-1724 on behalf of your wife and her sister so they could get his final SS payment. https://www.ssa.gov/forms/ssa-1724.html Otherwise, I can't think how SSA would have known to issue the 1099s for that last payment to them instead of to their father.

If SSA has already determined that his surviving children are entitled to the money that was returned to them, then they should be able to resend it. Unfortunately, if they do, then they may screw up and issue another 1099 for the same amount next year.

 

[bobandsherry]

It sounds like somebody filed an SSA-1724 on behalf of your wife and her sister so they could get his final SS payment. https://www.ssa.gov/forms/ssa-1724.html Otherwise, I can't think how SSA would have known to issue the 1099s for that last payment to them instead of to their father.

If SSA has already determined that his surviving children are entitled to the money that was returned to them, then they should be able to resend it. Unfortunately, if they do, then they may screw up and issue another 1099 for the same amount next year.

Yes, the SSA-1724 was submitted. They both received the payment, but it was due their father, and if paid as such would have been his taxable. So I'm confused why it's now being reported as a taxable benefit for each of them. I guess I'll have to get my wife to call SS office and see if they can get this cleared up. Thanks

 

[cathy63]

Wait, the daughters did receive the money and they kept it? I thought you said it was sent back. If they have the money, then they do owe the taxes on it. SS can't pay a deceased person, and they can't pay his estate if there are qualified survivors. It doesn't matter how much tax he would or wouldn't have owed due to being in a lower tax bracket. Your wife received the funds and has to pay the tax at her own rate.

 

[RetiredHappy]

Wait, the daughters did receive the money and they kept it? I thought you said it was sent back. If they have the money, then they do owe the taxes on it. SS can't pay a deceased person, and they can't pay his estate if there are qualified survivors. It doesn't matter how much tax he would or wouldn't have owed due to being in a lower tax bracket. Your wife received the funds and has to pay the tax at her own rate.

Shouldn't the payment be considered as part of the deceased (father)'s estate, even though they were paid to the children?

 

[cathy63]

Shouldn't the payment be considered as part of the deceased (father)'s estate, even though they were paid to the children?

No. The person who actually received the money is the one who pays the taxes. That's why they require the recipients' SSNs on the claim form.

 

[N02L84ER]

Cathy is right. DH received 1/2 of his Mother's final SS check after the bank sent it back and we reported it on our taxes.

 

[bobandsherry]

Wait, the daughters did receive the money and they kept it? I thought you said it was sent back. If they have the money, then they do owe the taxes on it. SS can't pay a deceased person, and they can't pay his estate if there are qualified survivors. It doesn't matter how much tax he would or wouldn't have owed due to being in a lower tax bracket. Your wife received the funds and has to pay the tax at her own rate.

They sent back the original monthly payment, due to his death. They subsequently sent to both. Thanks