Small Business Taxes & Management^TM--Copyright 2026, A/N Group, Inc.

Introduction

There's a lot to think about in retirement planning, but one thing most taxpayers and professionals don't look at is what happens for income tax purposes on the loss of a spouse. Social security benefits from that spouse will be lost, but you won't have the benefit of filing married, joint and you'll lose some other benefits. What are the consequences? We've run some numbers using relatively a simple scenario that can give you some insight. By the way, most of the comments below also apply to divorced individuals.

The Assumptions and Scenarios

High Income Taxpayers. Well, maybe not that high. We assumed a married couple, Fred and Emma, with $400,000 of investment income and $40,000 each in social security. The investment income could be from interest, nonqualified dividends, pensions, IRAs, or similar sources. Qualified dividends and capital gains are taxed at lower rates, but unduly complicate the analysis. We assumed the taxpayers would take the standard deduction.

Using these assumptions, the total tax (including the net investment income tax) for a married couple would be $100,810.

Now assume that Fred passes away at the end of 2026. Everything else stays the same, but total income drops by %40,000 because Emma isn't getting Fred's social security, she has her own. The total tax is $122,601, even though the pretax income has gone down by $40,000. There are two major reasons. First, the tax rates for single are higher and second, Emma gets a standard deduction that's half of that for a married couple filing jointly. We've assumed nothing else has changed.

Middle-Income Taxpayers. Same assumptions as above, but investment income is only $100,000. Social security is the same. As a married couple Fred and Emma will owe $18,978. Again assume Fred passes away and his social security is gone. The total tax liability is $20,202. The survivor will file as single and get one-half of the standard deduction afforded a married couple. The increase is far less significant, but more than a few taxpayers will still feel the pinch on top of the loss of social security.

Surviving Spouse. The surviving spouse may continue to file as married, joint for two years after the death of a spouse if he or she has dependent children, was entitled to file a joint return during the last year the spouse was alive and doesn't remarry during the two-year period. Essentially that puts them back in position they were before the spouse's death. The taxes would probably be significantly lower because of loss of social security. Because a dependent child is required, that's likely to help only a few older individuals. The benefit is primarily for younger individuals.

Head of Household. This is another beneficial filing status. You must be unmarried on the last day of the tax year, pay more than half the cost of keeping up a home, and have a qualifying individual living with you in the home for more than half of the year. The individual need not live with you if the qualifying individual is a parent. There are two advantages. First, the standard deduction is higher and second, the tax rates are lower. There are no time restrictions. You could in theory avail yourself of this filing status for any number of years.

Other Changes

General. There are a number of other benefits that are based on filing status and income. Your standard deduction drops in half when single, the maximum capital gain rate is adversely affected, the exemption amount for the alternative minimum tax and the tax rate for the AMT, the threshold and phaseout amounts for the qualified business income deduction, the limit on contributions to a deductible IRA, etc.

Home sale exclusion. This is the big one. Not only can it have significant tax consequences there's also a better chance of encountering the issue. A married couple can exclude up to $500,000 of the gain on the sale of principal residence. For a single individual that drops to $250,000. A surviving spouse can still claim the full $500,000 if the sale occurs no later than 2 years after the deceased spouse's death and the other requirements were met. You can also claim the full $500,000 if you remarry and you both meet the other requirements.

Bottom Line.

The only real way to figure out the consequences are to run the numbers in a tax program. If you're doing your own return with tax preparation software, plug the numbers into the calculator most programs have for next year's return. If the feature is not available just use the current year model, it won't be far off.

--Last Update 05/28/26