Military Survivor Benefit

[EDROUSE]

What is the name of your state?What is the name of your state? FL

Hello:

Thank you for your help. My sister's husband died while on active duty in the military and I tried to help her with her tax return. Her son who is 10 years old recieves a payment from the militry as a survivor on a Form 1099-R. The IRS is saying that this is investment income and that the tax should be at the parents rate and also that we should file a Form 8615. I do not think that this is investment income to the child based on what I have read in the publications but I can not find anything specific about military survivors payments. Do you know whether they are correct or is there an exception to the rule for these types of payments. Thank you

[Snipes5]

If they were able to retire him immediately before he died (a common practice), and these are survivor retirement benefits, yes, they are income and are taxable, but are not "investment" income, even though they show on a 1099R.

They are, however, "unearned" income. He should file his own return, regardless of his age, and list the income.

If the income is DIC (Dependent Indemnity Compensation), it is likely taxable in the same manner.

You don't have to do it on form 8615, I believe it should be done on his own return. Either way, it will be taxed the same. Have it done by a professional, however. His age and the income will most likely trigger AMT (Alternative Minimum Tax), which is a bit more complicated than you will want to handle on your own.

A tax professional will be able to examine the circumstances and the 1099R and determine the best way to file.

I am sorry for your sister's and nephew's loss.

Snipes

[EDROUSE]

Sir:

Thank you for your response. I believe the income is taxable but my question is more specific. At whose tax rate is the income in the name of a surviving child taxed; the parents rate or the child's rate? The IRS form says unearned income of a child less than 14 years of age must be taxed at the parents rate. I can not believe they mean that it applies in the circumstance where a deceased veterans child is recieving a survivors annunity. Thank you

[abezon]

No, Form 8615 says _investment_ income over $1,600 is taxed at the parent's rate. A survivor pension is not investment income. It will be taxed solely on the child's return.

Your sister should save records showing how the $$ was spent. If she spends the pension in such a way that it covers over 1/2 your nephew's total support, she will not be able to claim him as a dependent. The best way is to save as much of the pension income as possible (perhaps a college fund) and use her own income to pay the household expenses.

[EDROUSE]

Sir/Madame:

Thank you for your response. I appreciate your concern. So based on your answer can I assume that when the instructions for Form 8516 say "unearned income" that this only refers to investment type income and does not include the survivors annunity. Thank you very much for your kind assistance.