The personal representative of a decedent who earned income in the year prior to his death will need to file a tax return on the behalf of the deceased. If the decedent has unfiled tax returns from previous years, the personal representative may also be responsible for filing those returns. In addition to income tax returns, the Internal Revenue Service (IRS) may require separate income tax returns for the estate and an estate tax return. On the returns, a tax preparer will need to specify that the subject is deceased and include the date of death.
Individual Tax Returns
The personal representative is responsible for filing a tax return for the decedent's earned wages, self-employment income, stakes in corporations, dividends and interest, and shares earned in business partnerships. In most situations, the personal representative may take the same deductions for the decedent that the deceased would have taken if he were still living, including the Earned Income Credit. If the decedent is owed a tax refund, the personal representative may need to fill out IRS Form 1310 to receive the money.
If wages and earnings are paid to a deceased person after their death, those wages or payments should not be included on the decedent's tax return. The estate will be taxed for these payments instead. These earnings should be reported on IRS Form 1041, provided that they are over $600. In addition to wages paid after death, the estate return should also include all money earned by the estate in the course of the liquidation of the decedent's assets. Income taxes on estates are generally assessed in the same manner as individual income taxes.
Military and Terrorism Relief
If an individual dies as a result of military service or a terrorist attack, their personal representative and beneficiaries will not be required to pay taxes on their income and earnings. Nonetheless, the personal representative will still need to file a tax return, specify where the death took place, and attach a copy of the death certificate and letter from the military, Department of Defense or other government agency verifying the circumstances of the death.
Property that is received through inheritance is not taxable unless it earns some sort of income, such as rental properties where the recipient would receive monthly payments. Likewise, payments received through veterans' insurance are not taxed. Life insurance benefits are also not taxable, including life insurance payments made in installments and some accelerated death benefits paid to terminally ill persons and their beneficiaries.
If the decedent was married during the year prior to their death, his spouse may be able to file a joint return with their late spouse. Under IRS rules, they may file the return as a qualifying widow(er) if they did not remarry in the year of their spouse's death, have a dependent child and provided over half of the household income for the primary residence of the dependent child. The surviving spouse and the decedent must have otherwise qualified to file a joint return for that tax period.