What Happens to Unpaid Taxes After Someone Dies?
“In this world, nothing can be said to be certain, except death and taxes.” — Benjamin Franklin
If you’re dealing with both death and taxes at the same time, it can be mind-blowingly stressful. The important thing is to get in front of the taxes. If you ignore a deceased person’s back taxes or their final tax return, their account may incur penalties and interest. Depending on the situation, the IRS may go after the estate, the surviving spouse, or sometimes even an executor.
To get help now, contact us at the W Tax Group today. We are deeply sorry for your loss, and we can help you navigate this situation. If you’re wondering what to expect, keep reading for an overview of what happens to unpaid taxes when someone dies.
Who is responsible for a deceased person’s tax debt?
If a taxpayer dies, their estate is responsible for their unpaid taxes. However, if their tax debt is from a jointly filed return, the surviving spouse is liable.
Here’s how it works. When someone dies, everything their own becomes part of their estate, and their estate goes through a legal process called probate. Probate is when the courts verify the will (if there is one) and appoint an executor to distribute the deceased person’s assets to their heirs. However, before distributing the assets, the estate must pay all of its debts. This includes tax debts.
Look at this quick example. Imagine that Joe dies. He doesn’t have a will, he is not married, and he is the sole owner of all of his assets. He has cash in his bank account and several assets with equity. However, he also owes back taxes, and when the executor files Joe’s final tax return, they discover that he owes additional taxes.
The executor uses the cash in Joe’s bank account to pay some of the taxes. Then, he cashes out some of Joe’s stocks to pay the remaining amounts. He also pays some credit card debts and medical bills. Once the debts are paid, the process is over, and the rest of Joe’s assets pass to Joe’s children. Note that when someone doesn’t have a will, their assets pass to their heirs based on state law.
What if no one pays the deceased person’s taxes?
Executors need to handle tax debts during the probate process very carefully. If you don’t file the right returns or pay the decedent’s taxes correctly out of the estate, the IRS can hold you personally responsible for the tax debt.
To return to the last example, imagine that the executor rushes through the probate process, and they never realize that Joe owes back taxes. So, they distribute the assets without paying the taxes. In this situation, the IRS may be able to hold the executor personally responsible for the tax liability.
If the taxes don’t get paid, the IRS can enforce collection actions such as wage garnishments, tax liens, and asset levies.
What if the estate is insolvent?
In many cases, estates have more debts than assets. This means that the estate is insolvent. It must pay any liabilities that it can afford to pay, and any remaining debts are probably not collectible. However, if the decedent’s back taxes are from a joint tax return, the IRS can try to collect the money from the surviving spouse.
To illustrate, say that Mei and Hank file a joint tax return in 2018. The return shows a balance due of $10,000. In 2020, Mei dies, and her estate is insolvent. The IRS cannot collect the tax debt from the estate, but they can go after Hank. They can even go after Hank if the couple divorced prior to Mei’s death. When a couple files a joint return, they are both liable for the tax debt.
What if there is no probate?
In many cases, estates don’t have to go through probate. This happens if someone doesn’t have enough qualifying assets or if they’ve used estate planning strategies to avoid going through probate.
For example, in some states, your estate doesn’t have to go through probate if you own less than $50,000 in personal property and no real property. In this case, the decedent’s debts often just go away, but there are exceptions.
Additionally, many people set up trusts to avoid probate. In this situation, the assets in the trust don’t pass through probate. If there are assets that go through probate, the tax debt can be taken out of those assets. If not, the IRS and other creditors have the right to make a claim against the assets in the trust.
The laws vary from state to state, but creditors (including the IRS) generally have a few years to try to collect a debt from an estate after someone’s death. If there is no probate, the creditors can enter a claim against the estate, and they may even petition for probate as an interested party.
To reduce this risk, some people open and close probate even if they don’t have to. During this process, they generally publish a notice to the decedent’s creditors, and if the creditors don’t act during a very specific time frame, they lose the chance to pursue the debt.
When is someone responsible for their late spouse’s tax debt?
Surviving spouses may be responsible for their late spouse’s tax debts in the following situation:
- They filed a joint return with their late spouse, and there is a tax liability related to that return.
- Their late spouse owes back taxes on a return that was filed as married filing separately, but they co-own property with their late spouse.
- They live in a community property state.
If you believe that you shouldn’t be held responsible for your late spouse’s tax liability, you may want to look into Innocent Spouse Relief. This program allows qualifying applicants to get relief from tax debts due to their late spouses.
However, you must meet very specific criteria to qualify. Generally, that means that you couldn’t know about the tax debt or the events that lead to the tax debt, and also, you shouldn’t have had a reason to know. Alternatively, you may qualify if you were coerced or abused into signing the tax return.
Which debts get priority after someone’s death?
If someone dies while owing multiple debts, the estate must pay their debts in a certain order. The first priority typically goes to secured debts. For instance, if the decedent owed money on a home loan, the mortgage lender would have priority over other debtors.
IRS tax debts are next in line. State tax bills generally come third. Finally, unsecured debts such as credit cards or signature loans are next in line.
How to figure out how much a deceased person owes
If you file someone’s final tax return, you will see how much they owe for that year, but what about back taxes? To find out if someone owes back taxes, you need to reach out to the IRS and let them know that you’re authorized to receive the deceased person’s information.
To do so, send a copy of the Letters of Testamentary approved by the probate court or file Form 56 (Notice Concerning Fiduciary Relationship) along with a copy of the Testamentary Letters. Also, include the deceased person’s Social Security Number, their last address, and a copy of their Death Certificate.
You can also request information about a deceased person’s tax bill by filing Form 15107 (Information Request for a Deceased Taxpayer). This form requests basic information about the deceased taxpayer. Then, it asks about the probate information, and it prompts you to list the decedent’s assets whether they went through probate or not.
Once you’ve established that you have the right to the decedent’s information, you can request a tax transcript online. This shows you the majority of information from their previously filed returns, including how much they owe. If you apply for the transcript online, the IRS will mail it to the decedent’s last known address. To get the transcript mailed to you, you must file Form 4506-T (Request for Transcript of Tax Return).
To find out how much they owed in back taxes, contact the closest Taxpayer Assistance Center for a payoff number. The IRS website says that you can get payoff information about a deceased person’s back taxes on the agency’s payment page, But unfortunately, this page doesn’t have links to any information related to getting a payoff number. It does, however, have links where you can make payments without signing in — so if you know how much they owe, you may be able to make a payment online.
Contacting the IRS about a Proof of Claim
If you are the executor of the estate and you know the decedent owes taxes, you must contact the IRS to make a proof of claim. The IRS will then send a claim for the tax debt to the probate courts. The timing varies based on the laws in your state, but generally, you must do this within a relatively quick period of time.
Tax liens on a deceased person’s assets
If the deceased person owes $10,000 or more in back taxes, there may be an IRS tax lien against their assets. You can find out if there’s a lien by doing a public records search. If so, contact the IRS Lien Unit for a payoff amount.
If the property sells for more than the amount of the lien, the proceeds should go to the IRS to cover the tax debt. Any remaining amounts go to the estate, and then, they are distributed to other creditors or heirs as applicable.
However, if the proceeds from the sale of the asset won’t be enough to cover the tax debt, you need to request a lien discharge. To do that, file Form 14135 (Application for Discharge of Property From Federal Tax Lien).
What about estate tax liens?
The estate tax is very rare. As of 2023, it only applies to estates worth over $12.92 million for an individual. At the time of writing, this threshold is scheduled to fall to $6 million in 2025. Estates over the threshold must file Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return).
If the estate is required to file Form 706, a lien automatically applies to the whole estate. Even if the lien has not been established as a public record, it still exists. To request to have it discharged from a certain piece of property, you must file Form 4422 (Application for Certificate Discharging Property Subject to Estate Tax Lien).
How to file a final return for a deceased person
Filing a decedent’s return is about the same as filing a live person’s return. You must report all their income, but you can also claim the credits they’re entitled to. Generally, if they earned $12,950 or less during the year, you don’t have to file unless they meet one of the other filing requirements such as earning more than $400 in net self-employment income.
When you fill out the return, you will note their death date on the return. Then, the estate representative will sign the return. They should also attach a document showing their authority to sign the return.
How to file taxes if your spouse dies
If you’re married and your spouse dies, you can file a joint return for the year of their death. However, the estate executor should also sign the return. If there is not an executor (for instance, if the estate doesn’t go through probate), you should sign the return and note “filing as surviving spouse” in the signature area.
You don’t have to file a joint return with your late spouse if you don’t want to. If desired, you can opt to file your return as married filing separately.
Note that if you remarry in the same tax year as your spouse dies, you cannot file jointly with your late spouse. Instead, you should file a joint return or elect the married-filing-separately filing status with your new spouse. Typically, in this situation, the late spouse’s return should be filed as married filing separately.
If you have a qualifying dependent, you can file as a qualifying widow(er) for two tax years following your spouse’s death. This allows you to claim the same standard deduction as a married couple.
How to claim a refund owed to a deceased taxpayer
If the deceased person is due a tax refund, there are a few different ways to claim it. A surviving spouse can file a joint return and claim any refund that is due to the couple together. Alternatively, the estate executor can file the decedent’s last tax return and have the refund routed to the estate.
If the above situations aren’t applicable, then, you need to file Form 1310 (Statement of a Person Claiming Refund Due a Deceased Taxpayer). A surviving spouse can also use this form to get a refund check reissued in their name alone, rather than in their name and their late spouse’s name.
What if the deceased person has unfiled tax returns?
If the deceased person was supposed to file tax returns and they didn’t, you need to file those returns before the probate process ends. Filing the returns allows you to calculate how much the person owes. Then, the estate can pay the tax debt, or you can make other arrangements as necessary.
Not sure whether or not they filed? You can request a transcript of their account to check if they filed. If they didn’t, you will need to dig into their financial records to figure out if they had a filing requirement or not.
How to address tax debt after a person dies
Depending on the situation, the IRS can hold the estate, the executor, or the surviving spouse responsible for a deceased person’s taxes. Then, the IRS can pursue collection actions such as garnishing wages, levying bank accounts, or placing liens on property.
To protect yourself, you should work with a tax professional. They can help you understand your options and figure out the best path forward.
How to minimize tax debts after someone dies
When filing the decedent’s final return, make sure to take advantage of all possible deductions and credits. You may want to work with a professional to ensure that you file the tax returns correctly. If there is a large back tax liability, you may want to have a professional review the returns to ensure that have been filed correctly.
FAQs About IRS Debt After Death
The specifics vary based on the situation, but here are the answers to some frequently asked questions. Note that this is not legal advice, and you should consult with an attorney about your specific situation.
What happens if a deceased person owes taxes?
If someone owes taxes when they die, their estate should pay the taxes out of their assets. In some cases, their spouse may need to pay the tax bill. If the estate is insolvent and the spouse can’t be held responsible, the IRS will mark the account as currently not collectible, and the tax bill will effectively go away.
What if my deceased parent owes taxes with no estate?
Normally, the estate is responsible for a deceased person’s taxes. However, if someone doesn’t have enough assets to go through probate, they essentially have no estate, and thus, the IRS cannot make a claim against the estate for the unpaid taxes.
However, there are exceptions. In particular, if the decedent owned assets that were exempt from probate, the IRS may still have the right to place a lien against those assets. Similarly, if the decedent owned assets jointly or had joint bank accounts, the IRS may also be able to make a claim against those assets.
What if my deceased father or mother owes back taxes?
Contact the IRS to find out how much your parent owed in back taxes. Then, let the IRS or state revenue agency know that they should make a Claim of Proof to the estate while it’s going through probate. The estate executor will pay the back taxes out of the estate’s assets.
What happens to IRS debt when you die?
Generally, your estate must pay the IRS tax debt. However, if your estate is insolvent, the tax debt may just disappear. If you filed a return with a surviving spouse, they will be responsible for the tax debt.
Get Help With a Deceased Person’s Tax Issues
Dealing with the loss of a loved one can be incredibly painful, and juggling paperwork on top of it all is the absolute worst. We know it’s beyond hard, and we can help. Whether you’re a spouse, an estate administrator, or anyone else, contact us for a free consultation today.
At the W Tax Group, we have extensive experience helping people with all kinds of state and federal tax issues. We can help you through this difficult time. We can also help if you have a tax debt that you can’t pay.