The Widow’s Penalty and Taxes
By Marjorie L. Rand, CPA, CFP®, RICP®
Losing a loved one can be one of life’s greatest challenges, and the financial hurdles that follow can make it even harder. When a spouse passes away, the surviving spouse may face unexpected financial and tax burdens, often referred to as the “widow’s penalty.”
State tax laws can play a significant role in this, potentially leading to a decrease in income. At the same time, surviving spouses may see higher Medicare costs and an increased tax bill, even after their spouse is gone.
With thoughtful and strategic tax planning, surviving spouses can reduce or even mitigate some of the financial burdens associated with the widow’s penalty.
Tax Implications of the Widow’s Penalty
The lifestyle change arising from a spouse’s death is significant. Healthcare, personal expenses, transportation, and financial management can all become more expensive. Taxes, however, can skyrocket unexpectedly. Here are some reasons why.
Changes in Income and Tax Rates
Many married couples file their tax returns jointly. When one of them dies, the survivor must file taxes as a lone individual, eliminating the benefits of a joint return. They may also find the tax percentage on already-reduced income increasing as well. The Tax Cuts and Job Act (TCJA) also mandated a steep drop in a couple’s standard deductions. When both partners are still alive, the 2025 standard deduction for joint filers is $30,000 (up from $29,200 in 2024). But when one spouse dies, the standard deduction plummets to $15,000 for single filers.
Medicare Income Related Monthly Adjustment Amount (IRMAA)
The IRMAA is an additional surcharge tacked on to the monthly Medicare premium in Part B and Part D plans. It’s predicated on the income and filing status from the two previous years. This is common with high-net-worth families. The resultant widow’s penalty makes these premiums more expensive.
Net Invested Income
Married couples who file jointly have a minimum threshold on investment income taxes. As long as their income from investments stays below $250,000, they avoid all tax liabilities on their portfolios. When income from their holdings exceeds that minimum, the couple is charged 3.8% of their holdings as a tax on net invested income.
After a spouse dies, however, that minimum drops to $200,000 if the survivor files taxes singly. They may also be moved into a minimum 32% tax bracket based on their revised income.
Ways to Minimize the Widow’s Penalty
For many families, the main vessel for generating post-death income is a large IRA that has monthly required minimum distributions (RMDs) beginning April 1st after your 73rd birthday (under the SECURE 2.0 Act, that RMD age will rise to 75 in 2033). With careful tax planning, survivors can reduce the IRA’s balance to generate less taxable income.
The best way to mitigate the effects of the widow’s penalty is for couples to actively manage their IRA while both partners are still alive. They may make higher after-tax contributions to their funds and convert to a Roth IRA, in which distributions are not taxed after withdrawal.
After death, the survivor has one last chance to take advantage of the joint filing status. This can reduce their tax impact immediately following their partner’s death. Couples in higher tax brackets may also think about making more charitable contributions. By donating the equivalent of their annual RMD amount to charity, the survivor may deduct the amount when filing taxes.
Start Planning Immediately
The TCJA is set to expire at the end of 2025, and no one is certain what could happen to specific tax brackets. They may revert to pre-TCJA brackets, which would reestablish higher minimum tax rates that were considerably higher. In any event, the time to start preparing for the widow’s penalty is now—before those measures may have an effect.
Find Support for the Widow’s Penalty
Losing a spouse is one of life’s hardest transitions, and the financial changes that come with it can feel overwhelming. As both a CPA and a CFP®, I specialize in helping people navigate the tax and financial challenges that arise after a loss.
You shouldn’t have to face these decisions alone. I’m here to help you understand your options, minimize unnecessary taxes, and create a plan that supports your financial future.
If you’d like to talk through your situation and see how I can help, schedule a 20-minute introductory call or reach out to me at 908-895-2406 or marge@randfinancialplanning.com.