Taxes, Later On: Part 12b of Financial Considerations When You Lose Your Spouse


Routine can be so comforting. Even when it bores us, repetition offers reassurance. The loss of a spouse destroys “normal” and requires the creation of new behaviors. Small decisions, like if you should eat or save the second Reese’s cup that he used to eat. Big ones, like what to spend and where to live. After you are widowed, your tax situation is also little different. In our series on how to manage finances after the death of a spouse, we’re exploring tips from FINRA, a reliable financial source. Today, Tip 12b: Taxes, Later On – how does your tax situation change after the death of a spouse?


Qualifying Widow Tax Status

For two years after your spouse dies, assuming you don’t remarry, you can use a special tax filing status called “Qualifying Widow” that allows you to use the higher standard deduction of Married Filing Jointly ($24,400 in 2019) rather than the lower Single deduction ($12,200 in 2019). What that means in plain, simple language is that you get to subtract more – twice as much – off your taxable income. Very simply, if you earned $60,000 in 2019 and you file as Single, your taxable income gets reduced from $60,000 to $47,800 by subtracting that standard deduction. When you were married, which includes the year your spouse died, you subtracted a higher standard deduction for Married couples Filing Jointly, or $60,000 - $24,400 or $35,600 (simplified) of taxable income.


If your spouse has died in 2019, you use that higher amount $24,400 in 2019 and then for the next two years you can use the Qualifying Widow deduction, which is the same higher “Married” amount. The amounts of the standard deduction increase slightly some years (it will be $24,800 in 2020), and you are allowed to use that amount for the first two years of widowhood if you don’t remarry. It is a very helpful tax break.


Remarriage

The pain of loss is strong right now, but at some point, you might meet someone special who you want to marry. One purely financial consideration about the timing of that decision is the effect it could have on your Social Security retirement benefit amounts if you are under 60. A quick, very simplified refresher on how Social Security works for married retirees. Spouse A and Spouse B both worked, paid into the system, and are entitled to Social Security retirement benefits. A had higher lifetime earnings and thus will get $2,500 per month in benefits based on his/her record. B earned less over a lifetime will get $800 per month on his/her record. While both A and B are alive, A can take the $2,500 and B is eligible for half of the benefit generated by A’s record, or in this case $1,250, which is much better than $800.


If A passes away, B can then receive benefits based on A’s record, or $2,500 for the rest of B’s life. Note that B will not get the $800 plus the $2,500. One change that occurs, however, is if A has died, B is under age 60, and B remarries Spouse C. At that point, B will no longer be able to claim benefits on A’s record but will instead become eligible to claim on C’s record. If C’s benefits are much lower than A’s had been, it would reduce A’s lifetime income. In that case, if B just waits until age 60 to marry, B can then eventually claim the higher amount from C’s record.


We’ll wrap up our FINRA’s tips for widows next time. Tip 13 is the last article in our series on financial advice for widows. Thank you for joining me.


Kathryn Hauer, a Certified Financial Planner™, adjunct professor, and financial literacy educator has written numerous articles and several books including the “11-Step, DIY, Comprehensive Financial Plan Workbook” and “Financial Advice for Blue Collar America.” She works to help clients and readers understand and act on complex financial information to keep them and their money safe. She functions as a strong advocate and guiding light for her clients as they move through a murky and unfamiliar financial world. Learn more at her website.

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