Filing a Final Tax Return for a Deceased Worker: Claiming OBBBA Tips and Overtime
Surviving spouses and estate executors must file a final income tax return for deceased workers. Learn how to claim OBBBA tip and overtime deductions posthumously.
When a worker passes away during the calendar year after earning tips or working overtime hours, surviving family members and estate executors must complete their final tax responsibilities. Under federal tax law and the One Big Beautiful Bill Act (OBBBA), qualifying tip and overtime deductions earned prior to death remain fully deductible on the decedent’s final federal income tax return.
Key takeaways for surviving spouses and executors
- A deceased worker’s final tax return (Form 1040) covers the period from January 1 through the date of death.
- Qualifying tips and FLSA overtime premiums earned before death are deductible on federal Schedule 1-A.
- A surviving spouse can file a joint return for the year of death, claiming full joint deduction limits up to $25,000.
- Posthumous wage payments issued after death are classified as income in respect of a decedent (IRD) under IRC Section 691.
- IRS Form 1310 must be filed by non-spouse personal representatives to claim tax refunds on behalf of the decedent.
Filing rules for a deceased worker’s final Form 1040
Under Internal Revenue Code Section 6012, a personal representative or surviving spouse must file an individual return for a taxpayer who died during the tax year. Federal procedures for handling estates and decedents are explained in IRS Publication 559.
The final Form 1040 includes only income received or constructively received before death. Write "DECEASED", the worker name, and date of death across the top of the return. If a surviving spouse has not remarried during that tax year, the spouse can file as Married Filing Jointly, preserving the higher joint standard deduction and full joint OBBBA deduction caps ($25,000 for tips and $25,000 for overtime).
Claiming OBBBA deductions on the final return
Any qualifying tips or FLSA overtime premiums paid to the worker before passing away qualify for the OBBBA deduction. The representative attaches Schedule 1-A to the final Form 1040. Learn the filing steps in our Schedule 1-A filing guide.
Enter qualifying tips on line 1 and qualifying overtime premiums on line 2, which flow into line 10 of Form 1040 to lower adjusted gross income. This deduction frequently reduces taxable income to zero, creating a substantial refund of all federal income taxes withheld from the worker earnings prior to death.
Income in respect of a decedent (IRD) under Section 691
Wages, overtime, or accrued tips earned by the worker before death but paid after death represent income in respect of a decedent (IRD) under IRC Section 691. Tax reporting mechanics are outlined in IRS Publication 15.
How employers report posthumous wage payments depends on the timing:
- Paid in the year of death: The employer reports wages on Form 1099-MISC in Box 3 (Other Income) under the beneficiary or estate Social Security number, while FICA taxes are reported on Form W-2 in Box 3 and Box 5.
- Paid in the year following death: The payment is exempt from FICA taxes and reported entirely on Form 1099-MISC Box 3.
Because IRD wage payments paid to an estate or beneficiary are reported on Form 1099-MISC rather than Form W-2, survivors should attach a statement explaining that the income represents qualifying FLSA overtime earned by the decedent to substantiate Schedule 1-A deductions.
To calculate the tax refund owed to the deceased worker’s estate, use our free OBBBA tax calculator.
Claiming refunds with IRS Form 1310
When the final return produces a tax refund, surviving spouses filing jointly receive the refund check automatically. If the return is filed by an executor, estate administrator, or court-appointed representative, they must complete and attach IRS Form 1310 (Statement of Person Claiming Refund Due a Deceased Taxpayer).
Form 1310 establishes your legal right to receive the refund on behalf of the deceased worker’s heirs or estate, ensuring that hard-earned OBBBA tax relief is returned to the family.
Frequently asked questions
Can a surviving spouse claim the full $25,000 overtime deduction cap?
Yes. If filing as Married Filing Jointly for the year of death, the surviving spouse can claim the full joint deduction limit of $25,000 for qualifying overtime and $25,000 for tips.
What documents are needed to file Form 1310?
Court-appointed personal representatives attach court letters of administration or testamentary letters. Non-court appointed heirs must attach a copy of the official death certificate.
Does the estate pay income tax on the OBBBA deduction?
No. OBBBA deductions claimed on the final Form 1040 reduce taxable income, and the resulting tax refund is an estate asset not subject to federal income tax.
What if the employer refuses to issue Form W-2 with Code TT?
The executor should provide the employer payroll department with final paystubs showing overtime hours worked prior to death and request a corrected Form W-2c.
This article is general information, not tax advice. Tax rules and payroll reporting require exact records. Consult a qualified CPA, Enrolled Agent, or tax attorney regarding your individual return.