How the Widow’s Penalty Impacts Your Taxes

The loss of a spouse brings not only emotional grief but often unexpected financial pressures. Surviving partners can face additional tax and income challenges, sometimes called the “widow’s penalty,” making it crucial to review and adjust their financial plan.

These burdens may include reduced income under state tax rules, increased healthcare costs, and higher taxes, all while navigating the aftermath of loss.

Careful financial and tax planning can help survivors manage these challenges, ease the strain, and regain stability in their financial life.

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 burdensome to meet without two incomes to support them. Adding to the financial strain, future tax liability for the widow(er) could also increase significantly. Here are some reasons why.

Changes in Income and Tax Rates

Most married couples file their tax returns jointly. When one of them dies, the survivor must file taxes in the following years as a single individual, eliminating the benefits of a joint return. The survivor’s filing status may also jump to higher-percentage tax brackets sooner than expected.

Standard vs. Itemized Deductions

The Tax Cuts and Jobs Act (TCJA) drastically changed standard and itemized deduction allowances, increasing the standard deduction slightly, but reducing the potential reduction in tax liability by itemizing. The 2025 standard deduction for joint filers is $30,000, but the standard deduction is only $15,000 for single filers. Depending upon what income sources remain for a widow(er), the lower standard deduction could mean more taxable income as a single filer.

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 and  is a common tax issue for higher-income retirees. Filing jointly, this surcharge doesn’t apply until the $212,000 threshold, however, as a single filer, the surcharge is applied after just $106,000 of income. Again, depending upon the income of the surviving spouse, there could be a greater likelihood of exposure to this surcharge with the lower threshold.

Net Invested Income

Married couples who file jointly may have up to $250,000 in AGI before an additional 3.8% surcharge is applied to net investment income. After a spouse dies, however, that minimum threshold drops to $200,000 as a single filer, so the lower amount may subject a surviving spouse to this additional tax surcharge on their taxable portfolio income.

Ways to Minimize the Widow’s Penalty on IRA Accounts

For many families, the main vessel for generating post-death income is a large IRA which has monthly required minimum distributions (RMDs) beginning April 1st after your 73rd birthday (under the SECURE 2.0 Act, the 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

Many of the TCJA’s provisions are 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 which were considerably higher. In any event, the time to start preparing for the potential of a widow’s penalty effect is now—before those measures become a reality.

Support for Managing the Widow’s Penalty

At The Rosamond Financial Group, we guide clients through the complexities of financial planning and tax obligations, including the challenges posed by the widow’s penalty. Our team helps you understand your options, reduce unexpected tax burdens, and make strategic decisions to shield your assets and financial future during difficult transitions.

To get in touch, we invite you to book a free introductory meeting online or call my office at 830-798-9400 or email solutions@rosamondfinancialgroup.com. We look forward to connecting.

About Preston

Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with over two decades of industry experience. He provides comprehensive wealth management and financial services to successful business owners, corporate executives, and affluent retirees who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch, a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing solutions@rosamondfinancialgroup.com or schedule a call on his online calendar.