Tax Prep: Survivor’s Penalty Can Be ‘Biggest Shock’ — How To Prepare for It
Written by
Adam Palasciano
Edited by
Nicholas Morine
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Taxes can be complicated, even moreso in the unfortunate event that your spouse passes away. According to the U.S. Census Bureau, 117.6 million or 46.4% of U.S. adults are single — nearly every other adult aged 18 and over. Being single can make your life as a widow or widower more expensive in certain cases.
The same year your spouse dies, you’ll be able to file as “married filing jointly” with your deceased spouse, unless you remarry before the end of the year. But after that year ends, you’ll go from married to single. As a result, you’ll experience what’s called a “survivor’s penalty,” as explained by CNBC. This happens when you switch your tax status from “married filing jointly” to “single” filing status, which usually results in higher taxes for you.
The Consequences of Switching From Married Filing Jointly to Single Tax Status
Unfortunately, a “single” filing status may result in higher marginal tax rates. This is due to a smaller standard deduction and falling into different tax brackets, depending on your situation.
For example, as a married couple under the current tax brackets, you can earn $22,000 per year or less and you’d only owe 10% on your taxable income. But, as a single filer, that same 10% tax rate only applies to income of $11,000 or less. If you still earn $22,000 on your own, you’d suddenly fall into the $11,001-$44,725 tax bracket as a single filer and you’ll owe taxes of $1,100 plus 12% of the amount over $11,000. The more you earn, the higher your tax bill will be as a single person.
You could find yourself in a higher tax bracket if you are eligible to take over your spouse’s pension after their death — or part of their monthly Social Security benefit — for example. All of a sudden you could still be earning close to what you earned together, yet your tax rate may increase.
Why Tax Rates Could Increase For Single Filers
In 2023, the standard tax deduction for married couples is $27,700. On the flip side, single filers can only claim a $13,850 deduction. Deductions are calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income, or “taxable income.”
George Gagliardi — a CFP and founder of Coromandel Wealth Management — explained that higher taxes can be “the biggest shock” for surviving spouses, per CNBC. Unfortunately, it may be even worse once individual tax provisions from former president Donald Trump’s legislation come to an end.
To put this into perspective, the individual brackets were 10%, 15%, 25%, 28%, 33%, 35% and 39.6% in 2018. Through 2025, five of these brackets are lower, at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. It’s unclear at this point what these same tax rates will change to in 2026, but it may mean higher taxes for single filers if the tax rates are increased.
How To Prepare Your Finances For The Survivor’s Penalty
Here are a few strategies that can help you save on taxes if you are affected by the survivor’s penalty, as explained by Gagliardi:
Consider non-spouse beneficiaries for IRAs: If you, as the surviving spouse, already have enough savings and income for the rest of your life, you might want to consider non-spouse beneficiaries for tax-deferred IRAs. Beneficiaries can include children or grandchildren, for example. By doing so, you could lower your tax bracket and give more assets to your heirs. And with proper financial planning, it’s possible to reduce the taxes paid on IRA distributions.
Consider partial Roth IRA conversions: If you’re a surviving spouse, you might also want to consider a partial Roth IRA conversion. This tactic transfers part of pre-tax or non-deductible IRA funds to a Roth IRA, allowing for future tax-free growth. While you’ll owe upfront taxes on the converted funds, you might save money with more favorable tax rates later on.
“This is often best done over a number of years to minimize the overall taxes paid for the Roth conversions,” Gagliardi detailed.
Take a closer look at your investment accounts: Keeping account ownership and beneficiaries up to date is important to avoid high costs for you after your spouse’s passing. Be sure to periodically review beneficiaries to avoid unnecessary taxes later on. Capital gains are incurred based on the difference between an asset’s sales price and the basis, otherwise known as the original cost. Fortunately, when a surviving spouse inherits assets, they receive what’s known as a “step-up in basis.” This means that the asset’s value on the date of death becomes the new basis, so it’s inherited by you at the current value even if the assets have appreciated over time. You’ll benefit from a more favorable capital gains tax later on if you decide to sell the assets.
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