A widow(er)'s exemption is a reduction of taxes allowed following the death of a spouse. It is intended to ease a potential financial burden on the surviving spouse and family that could result from their loss. The relief provided by states generally is in the form of reduced property tax.
Filing the Year Following the Year of Death
It's called the qualifying widow(er) tax filing status. The qualifying widow status, which provides many of the same tax benefits as the married filing jointly status, is not available to everyone.
Currently 48 states partially or fully exempt SBP payments and only two states in the country fully tax these benefits, Vermont and California.
The survivor trap arises in the years after a spouse dies, when the surviving spouse transitions to filing as a single taxpayer and often sees a higher tax bill. Sometimes this occurs because the changed filing status bumps a surviving spouse into a higher tax bracket even if income remains the same.
Taxpayers who do not remarry in the year their spouse dies can file jointly with the deceased spouse. For the two years following the year of death, the surviving spouse may be able to use the Qualifying Widow(er) filing status.
Understanding the Widow's Tax Penalty
In the year a spouse dies, the survivor is allowed to file as a married person and use the same tax brackets and standard deductions. In subsequent years, however, the survivor files as a single person and may be subject to higher marginal tax rates and reduced deductions.
For two tax years after the year your spouse died, you can file as a qualifying widow(er), which gets you a higher standard deduction and lower tax rate than filing as a single person.
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
The short version: Spousal benefits are available to retired workers' spouses or ex-spouses. They pay up to 50% of a worker's monthly retirement or disability benefit. Survivor benefits are paid to a surviving spouse or surviving ex-spouse when a Social Security beneficiary dies.
Qualifying Surviving Spouse Filing Status
The year of death is the last year for which you can file jointly with your described spouse. You may be eligible to use qualifying widow(er) with dependent child as your filing status for two years following the year of death of your spouse.
Funeral expenses aren't tax deductible for individuals, and they're only tax exempt for some estates. Estates worth $11.58 million or more need to file federal tax returns, and only 13 states require them. For this reason, most can't claim tax deductions.
If the deceased worked long enough under Social Security, the widow/widower can receive full benefits at the full retirement age or reduced benefits as young as 60. The amount of the benefit depends on the earnings of the deceased.
Exactly how much in earnings do you need to get a $3,000 benefit? Well, you just need to have averaged about 70% of the taxable maximum. In our example case, that means that your earnings in 1983 were about $22,000 and increased every year to where they ended at about $100,000 at age 62.
If your spouse dies, do you get both Social Security benefits? You cannot claim your deceased spouse's benefits in addition to your own retirement benefits. Social Security only will pay one—survivor or retirement. If you qualify for both survivor and retirement benefits, you will receive whichever amount is higher.
To qualify to get $144 added back to your Social Security check, you can enroll in a Medicare Advantage plan that offers a Part B premium reduction or giveback benefit.
You could get a monthly payment based on the work history of the family member who died. You might also get Medicare based on their work history if you're 65 or older, or you have a disability or end-stage renal disease (ESRD).
Widows often receive less income but will be pushed to higher tax brackets. In addition to higher tax rates, widows lose half the standard deduction as a single filer, increasing their tax bill as a result.
The level of federal tax applied to survivor benefits is influenced by the beneficiary's income level and filing status. Depending on those variables, as much as 50% or 85% of the survivor benefits may be considered taxable income.
— Except as provided in the two preceeding sections, a widow shall not, by reason of her remar- riage, forfeit any property or any right to which she would otherwise be entitled; and every widow who has re-married shall have the same rights of inheritance as she would have had, had such marriage been a first marriage.
Surviving spouse, at full retirement age or older, generally gets 100% of the worker's basic benefit amount. Surviving spouse, age 60 or older, but under full retirement age, gets between 71% and 99% of the worker's basic benefit amount.
You may be eligible for VA benefits and services after your loved one has passed. The PACT Act makes it easier for many survivors to receive Dependency and Indemnity Compensation (DIC). VA will be contacting survivors who were previously denied DIC benefits and may be newly eligible under the PACT Act.