The Internal Revenue Service requires estates to have their own tax identification numbers because an individual and his estate become two separate tax entities after death. They can’t share his Social Security number so the estate needs an identifying number of its own until it’s settled and probate closes.
The Probate Estate
The probate process moves the deceased’s property out of his name and into the names of his beneficiaries. A complicated estate can be tied up in probate for a quite a while, so the transfer from the deceased to beneficiaries usually involves a step in between -- the estate takes ownership of the property until it can be passed to beneficiaries. This includes cash the deceased might have had on hand. His personal bank accounts typically are closed and the money transferred into an account in the name of the estate. When the estate retains ownership of money or property, even for a short period of time, it needs its own tax ID number with the IRS.
The Deceased’s Social Security Number
Some tax returns must be filed in the deceased’s name, not that of the estate. If he worked up until the date of his death, there may be an outstanding paycheck due him, which must be reported to the IRS on his final tax return. The same applies if he has an investment that earned interest before his death, but not paid until after he died. The executor of his estate is responsible for filing a return and reporting any income he earned or took in from January 1 until his date of death. She would use his Social Security number on this return. If he failed to file returns in previous years, these must be filed after his death as well using his Social Security number.
The Estate’s Tax ID Number
When an estate earns income in excess of $600 after the date of death, it must file its own income tax return. \This income is reported to the IRS under the estate’s tax ID number or EIN, also called an employer identification number. These earnings go on IRS Form 1041 -- an estate income tax return -- not a 1040. Very large estates also may be liable for federal estate taxes and a tax ID number is necessary for this filing as well. But as of 2015, only estates worth more than $5.43 million are subject to estate tax. If the deceased owned a business, this requires yet another tax ID number after his death so wages can be paid to employees and income can be reported.
Getting a Tax ID Number
Getting an EIN for the estate usually is easier than figuring out why and when it needs one. It’s a simple matter of completing Form SS-4 and submitting it to the IRS, and the IRS allows you to do this online. If you’d rather do things the good old-fashioned way, get a copy of the form at your local post office or Social Security office and mail it in. But if you take this approach, you’ll have to wait four weeks or so to get the number back so you can begin opening estate accounts and seeing to the business of probate. You also can call the IRS and receive a number immediately, but even if you apply online or on the phone, you must mail in a hard copy of Form SS-4 as well.
- Bankrate: Tax ID for an Estate
- IRS.gov: Deceased Taxpayers -- Understanding the General Duties as Estate Administrator
- Executors Corner: Opening an Estate Bank Account
- MyEstateManager: Step 1 -- Obtain an Employer Identification Number
- IRS.gov: How to Apply for an EIN
- IRS.gov: in 2015, Various Tax Benefits Increase Due to Inflation Adjustments
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