When Social Security Survivor Benefits Are Taxable

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You probably know that Social Security is a significant source of retirement income but you probably know little about Social Security survivor benefits. According to Social Security, the value of the survivor benefits you may qualify for upon the death of a spouse or parent is higher than the value of your individual life insurance, if you have a policy. But any time you get paid, taxes become a concern. Are Social Security benefits taxable? The answer—like always— is it depends. First, let’s look at the 2 types of Social Security survivor benefits.

Widow or Widower

If a spouse passes away, the surviving spouse may receive full benefits once they reach their full retirement age or reduced benefits as early as age 60. If the spouse is disabled, benefits begin as early as age 50.

They can also get benefits at any age if they take care of a child who is younger than age 16 or disabled, who receives Social Security benefits. The surviving spouse also receives a one-time death benefit of $255 regardless of their age. They have two years to claim the benefit.

The amount of benefit gets complicated. If neither spouse has claimed benefits, and the surviving spouse works, he or she will receive theirs or the deceased spouses—generally whichever is larger. If one was claiming benefits and one was not, the surviving spouse will need help figuring out how to maximize their benefits.

Surviving divorced spouses generally qualify for benefits providing the marriage was at least 10 years and they are not remarried before the age of 60. Other rules apply that may disqualify the divorced spouse from receiving benefits.

How Widow or Widower Benefits Are Taxed

The tax treatment is much the same as if the person was paying based on their own years of services. Up to 85 percent of the benefits received might be taxable but that depends on a lot of factors but most notable is the income test.

If the person has any additional income but it’s below $25,000, benefits won’t be taxed. If they earn between $25,000 and $34,000, 50 percent of the survivor benefit is taxable. For anything above $34,000, 85 percent is taxable. For joint returns, the thresholds are $32,000 - $44,000, and $44,000 and above.

Unmarried Children

According to Social Security, 98 of every 100 children could get benefits. If the deceased parent’s child is under the age of 18, or 19 if they’re attending elementary or secondary school full time, he or she qualifies for survivor benefits.

They can also receive benefits at any age if they were disabled before the age of 22 and remain disabled. Stepchildren, grandchildren, step-grandchildren, or adopted children may also qualify for benefits. Eligible children can receive up to 75 percent of the deceased parent’s basic benefit.

How They’re Taxed

Survivor benefits to children are taxable under certain circumstances but in most cases, children will not pay taxes. If the survivor benefits are the only income the child earns, they won’t pay any taxes on the benefits.

If the child earns income through a job or other means, some calculating has to take place. Add half the child’s benefits for the year to any other income they received. If that amount is enough to meet the filing requirement, the income becomes taxable. For children, that number is $25,000 as of 2020.

Parental Tax Obligations

If you are the surviving spouse and your child receives survivor benefits, that money is for them and has no bearing on your taxes. You do not pay taxes for the child’s earnings and no part of your Social Security status will have an effect on their ability to collect benefits if they are eligible.

Maximum Family Earnings

If the family earnings are more than 150 percent to 180 percent of the deceased parent’s earnings, Social Security will reduce the benefits proportionally for everybody except the surviving parent until the total reaches the total maximum amount.

Survivor Benefits Are Complicated

Survivor benefits are complicated. In most cases, you will have to go to a Social Security office to figure out if you or the child is eligible and how much the benefits will be. Especially if you’re working and under full retirement age, get some help so you don’t miss out on benefits that are rightfully yours.