What Happens If a Deceased Person Owes Taxes?

Losing a loved one is not easy to cope with, and taxes are probably the last thing on your mind when you are processing the loss. Taxes are an essential part of your day-to-day life, but what happens if a deceased person owes taxes? Although it might seem harsh of the Internal Revenue Service (IRS) to expect a tax return from a deceased person, it's essential to being a U.S. citizen.

If you're a taxpayer and file your taxes regularly, an abrupt break in filing your taxes could raise some questions from the IRS. For this reason, you should have a plan to file taxes one last time, even after passing to the other side.

Does a deceased person have to file taxes?

The answer is, unfortunately, yes. A deceased person needs one last tax return filed in their name, especially if they were a regular filer.

Because of the sensitivity of this topic, it might seem a bit inconsiderate to talk about tax filing after a friend or family member has passed away. But understanding your loved one’s tax filing is important because the IRS can pursue you to pay their taxes if you are the spouse of the deceased or next of kin.  

A tax filing can also be part of a larger estate plan for all your savings, earnings, assets and debts – aka your estate. An estate plan is a series of events or steps that decide how your assets, savings and belongings are safeguarded, managed and distributed among the people who’ll inherit them after your death. Estate planning includes choosing the distribution of your assets, creating your will and testament and having a plan to clear any past debts.

How to file taxes for a deceased person

When filing taxes one behalf of your loved one, there are several tax forms needed. The first series of documents are the usual Form 1040 and 1040-SR (if the deceased was a senior citizen).There are some other tax forms you’ll probably need too. .

Before filing the taxes of a deceased person, you’ll need to verify a non-filing status, which includes information on how long the taxes remained unpaid. You need to verify all the documents relating to the deceased person's tax filing status. To get this information from the IRS, you’ll have to submit Form 4506-T, Request for Transcript of Tax Return.

If the assets and earnings of the deceased are more than $600 and there are pending tax payments, the executor needs to pay and close the IRS account. The executor has to do this before dividing the estate between the beneficiaries.

Tax refund check for the deceased person

Once you’ve filed a tax return for the departed soul, you’ll know if there are any remaining refunds with the IRS. You can claim the refund amount by submitting Form 1310, Statement of a Person Claiming Refund Due a Deceased Taxpayer.

Is there a penalty for filing a late tax return for a deceased person?

When it comes to IRS penalties, death is one of the rare exceptions. The tax return is exempt from the failure-to-file and failure-to-pay penalties, but you’ll need to inform the IRS that the person passed away.

At some point, you might realize the person hasn’t filed or paid taxes in the past few years. It’s best to explain this to the IRS, and you might need expert legal or CPA counsel. The IRS just wants to verify if you have any knowledge of unfiled taxes.

If you are a deceased person's spouse, and you were filing taxes jointly, you'll have to clear all the dues with the IRS, because as a spouse the legal responsibility falls on your shoulders.

When you file taxes for a deceased person, it helps the IRS be aware that a taxpayer has died.