Prepare for Higher Taxes in 2024 if Your Spouse Passed Away This Year

If you are a retiree who lost your spouse in 2023, I'm very sorry for your loss. Unfortunately, unless you're considered a qualifying widow or widower, your personal and emotional burden in 2023 may very well be followed up with a larger financial burden in 2024.

Unless you're caring for a dependent child who enables you to qualify for a different tax treatment, beginning the year after your spouse dies, you're considered single from a tax perspective. That could cause some substantial tax headaches, as the tax rates for single people are generally higher than the tax rates for those who are married and file joint returns for similar income levels.

Image source: Getty Images.

What can happen from an income perspective?

Typical retirees live off a combination of Social Security, any pension income they may have, and their own personal savings or investments.

A common estate plan strategy is for married couples to name each other as primary beneficiary, so that the assets of the first to die pass on to the surviving member. Similarly, pensions are often set up to pay as long as either member of a couple is alive. In addition, when one member of a married couple passes away, the surviving spouse generally gets the higher of the two Social Security benefits, as long as the survivor is at least at full retirement age.

That combination can set up a situation where a surviving spouse's income is almost as high as when both members of the household were alive, but the survivor's taxes are higher.

Say, for instance, a couple above age 65 had a $4,000-per-month second-to-die pension payment, $2,000 in Social Security benefits to one spouse, and $1,000 in Social Security spousal benefits to the other. That's $48,000 of pension income and $36,000 of Social Security income per year to the couple. That's $84,000 in total income, but only 85% of the couple's Social Security income is taxable, leaving their total annual taxable income at $78,600.

When the first spouse passes, if the pension continues and the surviving spouse gets the higher of the two Social Security benefits, that person's income will only drop $1,000 per month. That turns into $48,000 of pension income and $24,000 of Social Security income -- or $72,000 of total income. Likewise, only 85% of the survivor's Social Security income would be taxable, leaving that person's total annual taxable income at $68,400.

Then, the tax bite hits

In 2024, a married couple over age 65 that files jointly will get a standard deduction of $32,300. A single person over 65 will only get a standard deduction of $16,550. Applying those numbers to the above income levels means the married couple would face federal income taxes on $46,300 of their income. On the flip side, the single survivor would face federal income taxes on $51,850 of their income.

The table below shows the 2024 U.S. federal tax brackets for single filers and those who are married filing jointly.

Data source: IRS.

Put it all together, and the married couple would owe about $5,758 in federal income taxes, while the single survivor would owe about $10,101 in Federal income taxes. Net, a married couple with $84,000 in total pre-tax income would keep around $78,242 after federal income taxes. On the flip side, a single surviving spouse from that couple with $72,000 in total pre-tax income would keep around $61,899 after federal income taxes.

Get ready now for that 2024 impact

Losing a spouse is tough enough. Losing a spouse, part of your household's income, and finding out that your taxes will actually go up as a result can make an already emotionally challenging situation even tougher.

If you or a loved one is in this situation, make today the day you start to prepare for that new financial reality. As rough as it may be, it's much better to start planning now than to be surprised with a massively higher tax bill when you ultimately file, especially if your income is down at the same time.