The Internal Revenue Service requires employers to use Form 1099-MISC, Miscellaneous Income, to report payments to vendors, independent contractors, employees and insurance companies. The 1099-MISC form is not a personal reporting form, and taxpayers should not use this form to report their personal payments. Instead, business owners, independent contractors and self-employed taxpayers should use the form to report business payments.
Just as if an individual was still living, business owners must still provide a W-2 for deceased employees, which can then be managed by their estate.
How to Report Employment Wages
Business owners must provide separate forms for each payment made to individuals or businesses for $600 or more. For royalty payments, they must report payments of at least $10. Business owners should not use Form 1099-MISC to report employment wages paid to their employees or payments for reimbursable employment expenses, including reimbursing employees for their business travel expenses. Instead, they should use IRS Form W-2, Wage and Tax Statement, to report their wage payments. Furthermore, taxpayers should not use the form to report corporate payments and should use corporate-specific tax forms instead.
1099 Versus W-2
The IRS requires business owners to use Form W-2 to report their wage payments to deceased employees. For federal tax purposes, deceased employees include individuals who die during the tax year. A taxpayer's reporting obligations for reporting a decedent's wage payments on Form 1099-MISC apply to his obligations to report payments for estate purposes. The estate is then responsible for using the information provided by employers to calculate their individual tax responsibilities on the decedent's behalf. In other words, employers with employees who died during the tax year must report their final wages on Form W-2. After they report their wages on Form W-2, they must transfer the totals from boxes 3 and 5 of the form to box 3 of Form 1099-MISC.
Decedent Individual Tax Returns
Estate administrators or executors are required to file a decedent's last tax return and an estate tax return for the assets within the estate. Administrators must use an IRS Form 1040, U.S. Individual Income Tax Return, to file a decedent's final individual tax returns by writing "Deceased" across the top of the return. An administrator may have to complete a separate tax form to claim a refund on the decedent's behalf, if necessary.
Estate Tax Returns
According to the Internal Revenue Code, estates are separate entities from individual decedents and, as such, administrators must complete separate tax return forms on an estate's behalf. Using IRS Form 1041, U.S. Income Tax Return for Estates and Trusts, administrators must report estate income taxes and may have to pay federal income taxes if the gross value of their estates exceeds the annual estate filing threshold. Under the federal tax code, estate administrators are personally liable for filing income tax returns and paying income taxes as part of their fiduciary responsibilities. Beneficiaries of inheritances do not pay federal income taxes on their transfers.
- Internal Revenue Service: Instructions for Form 1099-MISC
- Internal Revenue Service: Publication 15 Employer's Tax Guide
- Internal Revenue Service: Publication 334, Tax Guide for Small Business
- Internal Revenue Service: Publication 4591, Small Business Federal Tax Responsibilities
- Internal Revenue Service: Publication 559, Survivors, Executors and Administrators