Question about survivor benefits

[isis297]

NY

I'm afraid I'm not following what the tax preparer is saying, so I was hoping you might be able to tell me in a way I understand.

My husband died suddenly last year in his 50s. He was on disability up to that point and we received payments for our 2 minor children.

He passed in May and I continued to get payments for the 2 minors until August when the one turned 18. It was around that time that he got his first job. He has to file taxes of course.

I gave my documents to the tax preparer and I am listed as the payee. She said his would go on his tax return. I don't follow that. Could somebody please explain it to me?

 

[zddoodah]

we received payments for our 2 minor children.

Payments of what from whom?

until August when the one turned 18. It was around that time that he got his first job. He has to file taxes of course.

What does your 18-year old do for work? If he only worked for the last 4-5 months of the year, he may not have made enough money to need to file a tax return. That said, if he had federal income tax withheld, it would probably be desirable to do so to get a refund.

I gave my documents to the tax preparer and I am listed as the payee.

Payee of what?

She said his would go on his tax return.

His what would go on whose tax return? Your husband's return or your son's return?

Could somebody please explain it to me?

As my questions should indicate, you haven't described the situation with any clarity such that anyone here can help you figure this out (at least not without making assumptions that may or may not be correct). I suggest you call the tax preparer. Tell him/her you have questions about what he/she told you. Apologize for not asking the questions at the time he/she first told you these things. Keep asking questions until you understand.

 

[Taxing Matters]

I gave my documents to the tax preparer and I am listed as the payee. She said his would go on his tax return. I don't follow that. Could somebody please explain it to me?

I'm a tax lawyer, so I do understand what you are asking. I am assuming that you are asking about Social Security benefits. If it's some kind of private annuity or benefit program you'll need to tell me which program because the answer will change. When your husband died. you and your kids were entitled to survivor's benefits. Your benefits are, of course, paid directly to you. But because your kids were under age 18 they can't have the Social Security paid directly to them. Instead SSA sends the payment to surviving parent, guardian, or custodian of the child until the child reaches age 18. The purpose of that is to ensure the kids benefits are held by a responsible person who will use the benefits for the care of the kids. If the payments went directly to the kids, kids often dont make great decisions about the money they get. Teens in particular often are poor money managers until someone teaches them the basics of money management.

The money landing in your accout for the kids is not your money. You aren't free to spend it on things for yourself. You have a duty to spend it for the benefit of the kids and save the rest for the kids so that they'll have that to use when they turn 18. As a result, those payment are not your income. They are income of the child beneficiaries. Those payments go on the kids' tax returns if they have sufficient other income such that they are required to file a return. This arrangement is good for the kids in helping them meet their needs as they grow up and is the better way for the money to be taxed, too. You are shown on the 1099-SSA as the designated payee of the kid's payments. Designated payee simply means you are the one receiving the money to hold for the kids. The kids are the beneficiaries and its the beneficiaries that are subject to tax on their Social Security benefits.

The basic rule is that if the person's only income is Social Security then the Social Security isn't taxable and, as there isn't any other income, there is no requirement for the kid to file a tax return. If the kid has other income and that other income plus one half of the Social Security exceeds $25,000 then the kid will have to file a tax and some of the Social Security (up to half of it) might end up being taxded. The details of the other income matter to determine what amount, if any, of the Social Security is subject to tax.

If you want more details on how all this works, read IRS Publication 915.

 

[isis297]

@Taxing Matters

Thank you. I didn't know there were different types of survivor benefits so I'm not sure how to answer that. My husband worked until his health no longer allowed him to. When he was alive, he was on disability the last few years and we had a small amount of survivor benefits coming in for the minor children. When he passed last year, of course, his disability went away and the amounts for the minors increased. My 18 yr old's went away in August.

He just started working last summer so his income was just under $6000. So we just take the 1099 with his W2 and only his W2 wages should be taxed?

I appreciate you.