Each personal exemption you are able to claim on your yearly tax return is the equivalent of roughly $3400. Children, parents, spouses and other qualifying dependents can allow you to adjust your withholding considerably. If one of your family members passes away over the course of a year, the tax deduction associated with your loved one is probably the last thing on your mind. However, there are several things you will need to consider about your federal income tax when you are confronted with the death of a dependent family member.
First, if your dependent dies over the course of the year, you may still claim them on your income tax for that period. There is no time limit on this stipulation; even if your dependent passes away in January, the deceased is still considered your dependent for that fiscal year.
Second, you should remember to notify Social Security when your dependent passes away. Many funeral directors voluntarily provide this information directly to the Social Security office; however, it is still legally the family’s responsibility to take care of the notification. Talk to your funeral director and see if this arrangement can be made on your behalf.
And finally, even though it may be the last thing you are worried about, don’t forget to speak to your employer about changing the withholding on your paycheck. You want to make sure that the tax withheld for your filing status accurately reflects the number of dependents you currently have. Since you will be able to claim your deceased dependent in the first year, it will not make much of a difference during that time. But if you forget to take care of it within that year, you could be in for a nasty surprise the second year if your withholding amount is too low.