It is tax time. One more complicated matter on a widow’s list of to-do’s. Among the many changes on your taxes this year, the addition of reporting social security (SS) survivor benefits can be bewildering. It is an easy mistake to include your children’s benefit income with your own taxes, as most SS survivor benefits are electronically deposited to your bank account on the child’s behalf. Even the Form SSA1099 arrives in January addressed to you as their parent. The good news is this assumption to include it on your personal tax return as income is incorrect.
For example, Christine, a recent widow, was preparing her taxes for the first time after her husband’s death. She was horrified to come up with a calculation that she owed more than $7,000 in taxes. Fortunately, a supportive and reliable friend gave her good advice when she confided in her – call a tax preparer. When Christine worked with the tax advisor, she learned that she mistakenly included her teenager daughter’s SS survivor benefits with her own.
Social Security survivor benefits for your children are considered taxable income only for the child who is entitled to receiving the benefit, even if the funds are deposited to you directly. Most children do not make enough in a year to owe any taxes. To determine if part of the child’s survivor benefit could be qualified as taxable income, add together:
- One half of the child’s benefits
- All the child’s other income, including tax exempt interest
For their benefit to be included as taxable income, the amount above must exceed a base amount determined by the IRS ($25,000 in 2015). If this occurs, then a portion of the benefit is incorporated as taxable income on your child’s return.
The tax advisor had her separate out the benefits she received for her daughter from her own taxes. She told him her daughter Amelia earned $3,000 over the summer and Amelia’s SS survivor’s benefit was $21,000. Using the formula described above, he added $10,500 (1⁄2 her benefits) + $3,000 (summer wages). The total, $13,500, was well below the IRS base amount and Amelia did not have to include any portion of her survivor benefit on her return. The removal of the $21,000 SS survivor benefits from Christine’s tax return made a significant difference for her.
If you would like to do this for yourself, you can figure the taxable amount of the benefits on a worksheet in the Instructions for Form 1040, Instructions for Form 1040A, or in Publication 915. Be aware, there are further nuances of the law depending on special circumstances, such as the child under 10, etc. (Source: www.irs.gov).
This first tax filing as a widow has a lot of nuances. It is a good year to bring in a professional to advise you and make sure you are using all the tax advantages available to you. Build a team of trusted professionals to help keep you moving forward. You are a smart, capable, strong, independent woman, figuring out your new life. Part of that is knowing when to bring in the experts to help out.
Above is a hypothetical illustration and individual results will vary. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James does not offer tax advice. Please consult your tax advisor for questions regarding your tax situation.
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