When someone passes away and leaves behind assets, their beneficiaries often face a mix of emotions—grief, gratitude, and sometimes confusion. Once the dust settles from the loss of a loved one, one of the most common questions that arises during estate settlement is: “Do I have to pay taxes on this inheritance?” The answer isn’t a simple yes or no. Whether or not a beneficiary pays taxes depends on a range of factors, including the type of inheritance, state laws, and the nature of the estate itself.

We’ll walk you through the basics of inheritance taxes, how they differ from estate taxes, how state laws play a role, and the tax payment process for those who do need to pay taxes.

Losing a loved one brings emotional hardship—and for many, a complicated set of responsibilities that must be addressed in the weeks and months that follow. This includes many financial and legal aspects of the deceased person’s estate, including how to handle their final tax return. A related question that often arises is: Who gets the tax return of a deceased person?

Whether it's a tax refund owed to the deceased or final filings that still need to be made, knowing the rules and following the right steps is essential for ensuring the estate is settled properly.

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Understanding the Basics: A Final Tax Return Is Required After Someone Dies

When someone passes away, the IRS still requires a final income tax return to be filed for that person for the portion of the year during which they were still alive. 

If the person dies in 2025, for example, a final Form 1040 will need to be filed by April 15, 2026, unless an extension is requested. The filing is typically handled by a surviving spouse, executor, or court-appointed personal representative.

If a refund is due on that return, it doesn't automatically go to the next of kin. Instead, who receives the refund depends on how the estate is structured and who has legal authority over it.

Who Can File the Tax Return After Someone Dies?

Before determining who receives any potential refund, it’s important to clarify who is eligible to file the return. In most cases, this responsibility falls to:

• The surviving spouse (if filing a joint return)
• The executor or personal representative of the estate
• A court-appointed administrator if there is no will or named executor

If the deceased was married at the time of death and the couple typically filed jointly, the surviving spouse can usually file a final joint return. Otherwise, the court-appointed or named representative must file on behalf of the deceased.

What Happens to the Tax Refund After Someone Dies?

If the deceased person is owed a refund, it legally belongs to the estate. That means the money does not immediately go to heirs or beneficiaries—it first flows through the estate, just like other assets.

Here’s how the process generally works:

1. File the Final Return
   The representative or surviving spouse files the deceased’s final Form 1040. If the deceased is owed a refund, the return should also include Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, unless the person filing is the surviving spouse or court-appointed representative.
   
   
2. Use of Form 1310
   Form 1310 is used when the person claiming the refund is not the surviving spouse or the officially recognized executor. For instance, if no executor has been named, and a family member is filing the return, Form 1310 is required to authorize the refund.
   
   
3. Distribution Through the Estate
   Once the IRS processes the refund, it will issue the payment to the estate or to the person legally entitled to it. If there is an open estate bank account, the funds will typically be deposited there. The executor will then distribute it along with the rest of the estate’s assets based on the will (or state laws if there is no will).

Legal Implications and Safeguards

It’s important to remember that the executor of the estate acts in a fiduciary role, meaning they have a legal obligation to manage estate assets—including tax refunds—responsibly and according to the law. The refund may need to be used to:

• Pay final bills or outstanding taxes
• Cover funeral or administrative expenses
• Resolve debts or legal claims

Only once the estate’s obligations have been met can the refund, or any part of it, be distributed to heirs or beneficiaries.

If the refund is significant, or if there is any dispute over the estate, it may be advisable to consult with an estate attorney to avoid potential legal issues.

Common Situations and How They’re Handled When Filing Taxes after Someone Dies

1. The Deceased Has a Will and an Executor
The executor files the return and receives the refund on behalf of the estate. After settling debts and obligations, the refund is distributed with the rest of the estate.

2. The Deceased Has No Will (Intestate Estate)
A court appoints an administrator, who becomes responsible for filing the tax return and managing the refund. The estate is distributed according to state intestacy laws.

3. The Deceased Was Married and Filed Jointly
The surviving spouse can file a joint return and will typically receive the full refund without the need for additional forms (no Form 1310 is required).

4. No Executor or Administrator Exists Yet
A family member or interested party can still file the tax return and request the refund by submitting Form 1310. However, they will not be able to distribute the refund until a legal representative is named.

Managing a loved one’s final tax matters can feel like one more burden during an already overwhelming time. But taking the correct steps to file the final return, claim the refund properly, and handle it through the estate helps ensure that everything is aboveboard—and that beneficiaries receive what’s legally owed to them.

If you're unsure whether you're the right person to file or claim a refund, or if the estate is complex, it’s worth consulting with a professional. Doing so can protect you from liability and help settle the estate efficiently and lawfully. While no refund can replace the person who’s been lost, handling it with care honors their legacy—and brings one more piece of closure to the estate process.

Elayne helps families navigate the practical matters after a loss—with expert guidance and easy-to-use tools. Sign up for free to get started today.

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Estate Taxes vs. Inheritance Taxes: Know the Difference

It's important to distinguish between estate taxes and inheritance taxes. While both relate to the transfer of assets after someone’s death, they apply in different ways:

• Estate Tax is levied on the estate itself before any distribution is made to beneficiaries. It is the responsibility of the estate (typically managed by an executor), not the beneficiary.
• Inheritance Tax is levied on the recipient of the inheritance. It is paid by the beneficiary, not the estate.

In the U.S., the federal government only imposes an estate tax, not an inheritance tax. However, some states impose inheritance taxes.

The Federal Estate Tax

As of 2025, the federal estate tax applies only to estates valued over $5 million per individual (this amount was reduced from a higher threshold due to tax law changes). Most Americans will not need to worry about the federal estate tax, since the majority of estates fall below this threshold. When applicable, the executor of the estate will file IRS Form 706 and pay the tax out of the estate’s assets before beneficiaries receive their share.

Do Beneficiaries Pay Taxes on Inheritances?

In most cases, beneficiaries do not pay federal taxes on inheritances. For example:

• Cash gifts are typically not taxable to the recipient.
• Inherited real estate and stocks receive a "step-up in basis," meaning capital gains taxes only apply if you sell the asset later for more than its stepped-up value.
• Retirement accounts like IRAs and 401(k)s are an exception—beneficiaries may owe income taxes on withdrawals, depending on the account type and distribution method.

States That Impose Inheritance Taxes

The following states currently impose inheritance taxes:

1. Kentucky
2. Maryland
3. Nebraska
4. New Jersey
5. Pennsylvania

Each state sets its own rules, exemptions, and tax rates. For instance:

• Spouses are typically exempt.
• Children and other close relatives often pay lower rates—or none at all.
• More distant relatives or non-relatives usually pay higher rates.

For example, in Pennsylvania, inheritance tax rates range from 0% (spouses) to 15% (non-relatives). If you live in—or inherit property from—one of these states, it’s essential to consult a professional.

What About Income Taxes on Inherited Assets?

Here’s where many beneficiaries get confused: some inherited assets can generate taxable income after they’re passed on. Key examples include:

• Traditional IRAs and 401(k)s: These are tax-deferred accounts, so withdrawals are taxed as regular income.
• Inherited annuities: Often subject to income tax on gains.
• Rental properties or businesses: Any income generated after inheritance is taxable.

On the other hand, life insurance proceeds are generally tax-free to the beneficiary (unless the policy was transferred for value or owned by a third party).

How Do You Pay Inheritance or Estate Taxes?

If you’re the beneficiary and an inheritance tax is due in your state:

1. Receive notice: You may receive forms or guidance from the estate’s executor or a state revenue department.
2. File state-specific forms: If you live in one of the five states listed above, or received an inheritance from one of these states, check with your state regarding the specific tax form needed.
3. Pay by deadline: States often have a set period (e.g., 9 months) after the decedent’s death to file and pay. Early payments may qualify for discounts.
4. Get help: A tax professional can help ensure accuracy and avoid penalties.

If you're the executor managing an estate subject to federal estate tax, it’s your responsibility to:

• Value the estate’s assets
• File IRS Form 706
• Pay the tax from estate funds

Tips for Beneficiaries

1. Understand the type of asset you're inheriting and whether it has tax implications.
2. Know your state’s laws, especially if the deceased lived in a state with inheritance tax.
3. Keep records of valuations and communications related to your inheritance.
4. Consult a professional to help you navigate tax filings and minimize liabilities.

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By understanding the difference between estate and inheritance taxes, checking your state’s laws, and being aware of income tax implications, you can better prepare for your role as a beneficiary and avoid unwelcome surprises during an already emotional time.

Talk to the helpful team at Elayne if additional support is needed as you navigate inheritances and other estate settlement matters. 

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