The Tax Process During an Estate Administration

There are, generally, three tax returns that may be filed after the date of death of the decedent by the executor (administrator) or executrix (administratrix) of an estate:

    (1) Personal Income Tax Returns, and

    (2) Fiduciary Income Tax Returns, and

    (3) Pennsylvania Inheritance Tax Return.

The process regarding these tax returns is described below, to assist in your understanding of the moving parts in estate administration.

1. Personal Income Tax Returns:
2. Federal 1040, and
3. PA-40, and
4. Local Income Tax Return

These are the tax returns that are filed every year with the IRS, PA Department of Revenue, and the Local County Tax Collection Bureau, if applicable, for all the income received by the decedent in that tax year. It is important that you collect the requisite W-2 forms, 1099 forms, etc. for the decedent, in order to utilize these forms to prepare these tax returns.

These tax returns may be prepared by an accountant, a tax preparer, or self-prepared (by you) as the executor/executrix. It will be useful to reference the decedent’s past year’s income tax returns in order to guide the preparation of the final lifetime income tax returns. The due dates for these returns generally align with the same due dates for all taxpayers, on or about April 15^th of the following calendar year, after the date of death.

• Fiduciary Income Tax Returns:
• Federal 1041 and
• PA-41

The estate is considered a separate taxpayer for State and Federal income taxes. The estate can have its first year be as short as a month or as long as twelve (12) months and can start on a fiscal year and then can be converted to a calendar year, depending upon the length of time. There are all sorts of complications and technicalities with these returns, that depend on the nature of the income and expenses of the estate. We will help you through this process, including the decision as to whether a Fiduciary Income Tax Return will need to be prepared.

• Pennsylvania Inheritance Tax Return (REV 1500):

This Inheritance Tax Return (“ITR”) is due 9 months from the date of death. If additional time is needed, a 6-month extension of time can be requested. However, this extension does not extend the payment deadline. The time to pay the tax is within the 9 months of death. If not timely paid, the tax can be subject to interest and (if not extended in advance) can be subject to penalties, depending on the circumstances.

The Pennsylvania Department of Revenue does offer a 5% discount of the tax paid or the tax due, whichever is less, when the estimated payment is made within three months of the date of death. This is optional. An attorney at Pyfer, Reese, Straub, Gray & Farhat, P.C. can assist you in determining the appropriate pre-payment amount that will best suit your situation.

The tax rates applicable to the PA ITR are as follows:

• 0% for asset transfers to the surviving spouse of the decedent or to the decedent from a child aged 21 years or younger (only if the parent passed away after December 31, 2019)
• 4.5% for asset transfers to lineal heirs or direct descendants of the decedent (such as children, grandchildren, stepchildren)
• 12% for asset transfers to siblings of the decedent
• 15% for asset transfers to other heirs of the decedent
• Charitable bequests contained in the Will are exempt from taxes

In certain circumstances, a Federal Estate Tax Return (Form 706) needs to be filed:

The Federal estate tax is only assessed on estates that are above the exemption amount of $12.06 million (the amount set by the IRS for the tax year of 2022). If this situation applies to you, the Federal Inheritance Tax Return will need to be completed and filed with the IRS. An attorney at Pyfer, Reese, Straub, Gray & Farhat, P.C. can discuss the implications of the federal estate tax with you.

If you need assistance in the preparation of these tax returns, please do not hesitate to reach out to an attorney at Pyfer, Reese, Straub, Gray & Farhat, P.C. Several members of our team, including Lancaster estate and probate law attorneys Christopher C. Straub, Sandra Edwards Gray, Albert J. Meier, and Megan H. Herr assist individuals with these legal matters.