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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 391
Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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My Father recently passed away and in his will the business

Resolved Question:

My Father recently passed away and in his will the business he owned is supposed to pay his spouse my Father's salary. The problem is his spouse is on 100% disability and she is telling me to pay her and issue her a 1009R (1099R). But when I looked at that it said that the money would had to have been paid from a qualified pension plan. However the business has no such plan and I'm not sure how to proceed. What are my options?
Submitted: 1 year ago.
Category: Tax
Expert:  taxmanrog replied 1 year ago.

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

 

I am guessing that your mom is trying to avoid losing her disability by reporting wages. You are correct, it cannot be paid to her on a Form 1099, as that is for distributions from qualified pension plans only.

 

There are a couple of alternatives. One solution is found in the IRS' instructions for Form 1099-MISC.

 

If an employee dies during the year, the accrued wages, vacation pay, and other compensation paid after the date of death must be reported. If the payment was made in the same year the employee passed, you must withhold social security and Medicare taxes on the payment and report them only as social security and Medicare wages on the employee's Form W-2. This ensures that proper social security and Medicare credit is received.

 

 

On the Form W-2, show the payment as social security wages (box 3), Medicare wages and tips (box 5) and the social security and Medicare taxes withheld (boxes 4 and 6). You do not need to not show the payment in box 1 of Form W-2.

If you made the payment after the year of death, do not report it on Form W-2, and do not withhold social security and Medicare taxes.

 

 

Whether the payment is made in the year of death or after the year of death, you also must report the payment to the estate or beneficiary on Form 1099-MISC. Report the payment in box 3 (rather than in box 7 as specified in Rev. Rul. 86-109, 1986-2 C.B. 196).

 

 

Enter the name and TIN of the payment recipient on Form 1099-MISC. For example, if the recipient is an individual beneficiary, enter the name and social security number of the individual; if the recipient is the estate, enter the name and employer identification number of the estate. The general backup withholding rules apply to this payment.

 

Alternatively, if you are simply attempting to get cash out of your father's company, assuming it was a corporation (since he could not receive a salary for a sole proprietorship or solo LLC), you could have the remaining board of directors declare a dividend. If there was any amounts that the company owed to your father as loans, they could also be paid off.

 

So, in summary of your question, you cannot pay your dad's salary to your mom and report it on a Form 1099-R. You also cannot pay any amounts for your dad after his death and report it on a Form W-2 for your dad. If you do pay any salary amounts earned by your dad but unpaid at the time of his death, you have to report those on a Form 1099-MISC, as instructed above.

 

I hope this answers your question! If you have any more please feel free to ask! If you have found my answers helpful, please rate me highly! I would appreciate that!

 

Again, thanks! Have a great week!

 

Roger

Customer: replied 1 year ago.

It is actually his second wife. My Father's will states that she is to receive his salary until she remarries or passes away. She is afraid of losing her disability and I'm afraid of the IRS. If I pay her on a 1099Misc would that not constitute an income for her and therefore jeopardize her disability payments from the state where she worked?


 

Expert:  taxmanrog replied 1 year ago.

Your mother has reason to fear. The State of GA would definitely say that earned income (reported on a Form W-2) would constitute wages which would threaten her disability.

 

The amounts paid to your dad after his death would be reported on a Form 1099-MISC NOT in your mom's name, but in your DAD's name. The first year they would be in your dad's name and SSN, and the years after that would be in the name of your dad's Estate (you would have to have one set up) and its FEIN.

 

One alternative for you is to call the State of GA, the department that administers your mom's disability income, and ask them if they have a mechanism to report these wages as something other than wages. I have a client retired on Social Security. He is 64, so any amounts he earns reduce his benefits. He has stock options and other deferred compensation that is reported on a Form W-2. Every year he gets a letter from the SSA trying to say he has to repay the Social Security that he has received. I write a letter stating that the W-2 amounts are not earned income, and they reverse their decision. GA may have a similar process for wages that are not really wages. If you would like, I can check with a contact there tomorrow.

 

I hope this helps! Let me know if you have any more questions!

 

Roger

Customer: replied 1 year ago.

My stepmother has informed me that her CPA has told her that I could pay her said monies if I didn't take out social security and medicare. Then issue her a 1009R for the year. I've never heard of a 1009R. Is there such a form and is it different from a 1099R? Thank you for helping me as I have worked for my Father for 29 years and this is the hardest thing I've ever had to deal with.

Expert:  taxmanrog replied 1 year ago.

There is no Form 1009R. I am sure he meant Form 1099-R.

 

The only things that are reported on a Form 1099-R are distributions from qualified retirement plans and annuities, pensions, IRAs or other qualified plans. Also, distributions from nongovernmental, non-qualified deferred compensation plans

(457(b) plans) paid to deceased employees are also reported on Form 1099-R. However, your dad's will stating that the company is to pay his salary to his wife until she remarries is not a 457(b) plan. So, your CPA needs to do some more research, because what he is proposing is not legal.

 

I hope this answers your questions! Let me know if you have any more.

Expert:  taxmanrog replied 1 year ago.
One thought came to mind, and another expert also mentioned it, is that these types of clauses in wills, while somewhat popular, are not usually enforceable. You would have to run it by a Georgia attorney to make sure. I know that in Illinois, Florida and Texas, it would not be enforceable, as the time period and the amount are not quantifiable. There is no fixed period of time, so the amount can't be determined, and there is no business purpose. Also, human nature with that type of arrangement would prove a disincentive for getting married! Why would someone turn off the money spout, so to speak, by getting married? This fact alone makes it a detriment to the public, as a lawyer friend told me.

So, if the remaining company owners do not want to pay it, I believe you have an out.
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 391
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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