How to Handle Taxes After the Death of a Spouse

Immediate priorities: a short checklist

• Get multiple certified copies of the death certificate from the funeral home or vital records office — you’ll need them for banks, the SSA, and the probate court.
• Notify Social Security if appropriate and determine survivor benefit eligibility (contact SSA promptly).
• Identify and gather the decedent’s paperwork: W-2s, 1099s, brokerage statements, retirement account statements, property deeds, prior-year returns, and insurance policies.
• Open a separate estate bank account if there will be ongoing estate administration (do not mix personal and estate funds).

These steps reduce delays and make tax filing and estate settlement smoother.

Filing the decedent’s final income tax return

When a spouse dies, you must file a final Form 1040 for the decedent for the year of death. That return reports income the decedent received from January 1 through the date of death and follows the usual filing deadlines (generally April 15 of the year after the tax year) unless you file for an extension (IRS Form 4868).

• If the surviving spouse files a joint return for the year the spouse died, you may still file a joint return for that year. For tax years after the year of death, joint filing is not permitted.
• If the decedent is due a refund, the surviving spouse usually claims it on the final return; if there is a tax due, the estate or surviving spouse must pay it.

(IRS Publication 559 and Publication 17 discuss filing final returns and the responsibilities of executors and survivors.)

Choosing the surviving spouse’s filing status

After the year of death, the surviving spouse’s options depend on circumstances:

• For the year of death you may generally file jointly (if you didn’t remarry before year-end).
• For up to two tax years following the year of death, you may qualify for the “Qualifying Widow(er) with Dependent Child” status if you have a dependent child and haven’t remarried — this allows the use of married filing jointly tax rates. (See IRS Publication 501 for details.)
• Otherwise, you’ll typically file as Single or Head of Household (if you meet the HOH requirements).

Make the choice that minimizes tax and fits your family situation.

Estate income and Form 1041

If the decedent’s estate receives income after death (for example, interest, dividends, or rental income), the estate may need to file Form 1041 — U.S. Income Tax Return for Estates and Trusts. The executor or personal representative is responsible for filing 1041 if the estate has gross income of $600 or more in a tax year.

Distributions to beneficiaries often create income recognition at the beneficiary level — the estate issues Schedule K-1s to report items passed through.

Estate tax and portability

Large estates might owe federal estate tax and must file Form 706 within nine months after the date of death (with a possible extension via Form 4768). Whether Form 706 is required depends on the total value of the decedent’s estate and current federal thresholds.

Important planning point: a surviving spouse can elect portability of any unused portion of the deceased spouse’s estate tax exclusion by properly filing Form 706. Portability can preserve an unused exclusion and may reduce future estate tax exposure for the surviving spouse. If portability is likely to matter for your family, filing Form 706 (even when no estate tax is owed) is often recommended.

For an in-depth look at thresholds, exemptions, and planning strategies, see our estate tax overview and the article on portability of the estate tax exemption.

• Estate Tax Overview: Thresholds, Exemptions, and Planning Strategies: https://finhelp.io/glossary/estate-tax-overview-thresholds-exemptions-and-planning-strategies/
• What is Portability of the Estate Tax Exemption?: https://finhelp.io/glossary/what-is-portability-of-the-estate-tax-exemption/

(Also confirm current federal exemption amounts and state estate or inheritance taxes; these amounts are inflation-adjusted and change over time.)

Step-up in basis and capital gains considerations

Most assets included in the decedent’s estate receive a stepped-up (or stepped-down) basis to the fair market value on the date of death (or alternate valuation date if elected). That step-up can reduce capital gains when the surviving spouse or heirs sell inherited property.

However, special rules apply for assets in community property states and for certain accounts. Work with a tax professional or CPA to calculate basis and track any carryover values.

Retirement accounts, IRAs, and pensions

Beneficiary designations control most retirement accounts. Tax treatment differs by account type and beneficiary category:

• For traditional IRAs and employer plans, distributions to non-spouse beneficiaries generally must follow required minimum distribution (RMD) rules or 10-year payout rules (depending on plan and post-SECURE Act rules). Spousal beneficiaries often may roll over the account or treat it as their own, which changes distribution timing and taxation.
• Roth IRAs inherited by a surviving spouse can often be rolled over or treated as the spouse’s own Roth (tax-free growth), but inherited Roths distributed to non-spouse beneficiaries follow different rules.

Because retirement account rules changed under the SECURE Act and subsequent guidance, check plan documentation and consult a tax advisor to determine the least-taxing course.

Life insurance, annuities, and probate

Life insurance proceeds paid to a named beneficiary are generally not taxable income. However, if proceeds are paid to the estate (because no beneficiary was named or it is payable to the estate), they may be included in the estate for estate tax purposes.

Annuity payouts and structured settlements have specific tax rules — documentation review is essential.

Paying taxes and dealing with refunds

• If taxes are owed on the decedent’s final return, the personal representative should pay from estate funds when possible.
• If a refund is due and the surviving spouse signs a Form 1310 (Statement of Person Claiming Refund Due a Deceased Taxpayer), the refund can be issued.

Keep careful records of all payments and refunds to avoid disputes during probate.

State taxes and other local rules

State income tax rules, estate taxes, and inheritance taxes vary. Several states still impose estate or inheritance taxes at different thresholds. Confirm state deadlines and filing requirements with the state tax agency or via the CFPB/state revenue sites. (See Consumer Financial Protection Bureau and your state’s revenue department for details.)

Practical tips I use with clients

• Prioritize getting certified death certificates early — you’ll need several (often 5–10) to close accounts.
• Ask the Social Security Administration about survivor benefits immediately — benefits can affect income and tax withholding.
• Don’t assume a tax advantage — run the numbers for ‘filing jointly’ in the year of death vs. filing separately to confirm the right choice.
• If the estate might file Form 706 to elect portability, do so even if no tax is due; the portability election requires a timely-filed Form 706.
• Keep separate, clear accounting for estate transactions. Record every distribution, expense, and payment from estate funds.

Common mistakes to avoid

• Missing the portability deadline by not filing Form 706 when needed. Without a timely Form 706, portability may be lost.
• Forgetting to change beneficiary designations — retirement accounts and life insurance normally pass by beneficiary designation, not by will.
• Ignoring state estate/inheritance taxes — many survivors check federal rules but overlook state obligations.
• Using personal bank accounts to pay estate expenses — this complicates accounting and can cause tax problems.

When to call a professional

• The estate’s value is near or over the federal exclusion threshold, or state estate/inheritance taxes may apply.
• The decedent owned complex assets: businesses, partnerships, out-of-state property, or significant retirement accounts.
• You need clarity on how to treat retirement account rollovers, RMDs, or inherited IRAs.
• You are the executor and the estate generates significant income requiring Form 1041.

A CPA or tax attorney with estate experience can prevent costly filing errors and help you choose the filing options that preserve tax benefits.

Sources and further reading

• IRS Publication 559, Survivors, Executors, and Administrators (guidance on filing final returns and estate responsibilities).
• IRS Publication 501, Dependents, Standard Deduction, and Filing Information (rules on Qualifying Widow(er) status).
• IRS Form 1041 instructions (estate income reporting).
• CFPB and state revenue department pages for state-specific estate/inheritance tax guidance.

This article is educational and not a substitute for personalized tax or legal advice. For decisions about filing Form 706, retirement account rollovers, or complex estate tax choices, consult a qualified CPA or estate attorney who can review your facts and state law.