Do I need to pay federal tax on my spouse's inheritance money?

I'm really confused about a tax situation that just came up with my wife's inheritance. Her grandparents passed away recently (still feels weird to talk about), and she along with several cousins received money from what I understand was her grandparents' IRA that got liquidated. When we got the check in the mail yesterday, there was this document attached that showed about 12% was withheld for federal taxes. I was under the impression that inheritance wasn't taxable? At least that's what my buddy told me when his dad passed and left him some money last year. The document specifically says "Federal Tax Withholding" and lists the amount. Why would they take taxes out of an inheritance? Is this normal or did someone mess up? Should we expect to get this money back when we file our taxes next year? My wife is calling her cousins to see if their checks had the same withholding, but I figured I'd ask here while we wait to hear back.

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18 comments

Ava Martinez

•8M

The withholding is happening because it's from an IRA, not because it's an inheritance. When someone inherits a traditional IRA and takes distributions (or in this case, when the estate liquidates it and distributes the money), those distributions are considered taxable income to the beneficiary. This is different from inheriting other assets like a house or regular bank accounts, which typically don't have income tax consequences for the beneficiary. IRAs are special because they're tax-deferred accounts - meaning the original owner didn't pay income tax on that money when they put it in, so the tax obligation passes to whoever eventually withdraws the money. The 10% withholding is standard for IRA distributions. Your wife will need to report this as income on her tax return, but depending on your overall tax situation, you might get some of that withholding back if it exceeds what you actually owe.

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Ava Martinez

•8M

Yes, you've got it exactly right. The government essentially "delays" taxation on traditional IRAs until the money is withdrawn, regardless of who withdraws it - the original owner or their beneficiaries. This will indeed count as regular income for your wife in 2025, and yes, it could potentially push you into a higher tax bracket if you file jointly. However, remember that tax brackets are marginal, meaning only the income above each threshold gets taxed at the higher rate, not all of your income. You might want to look at doing some tax planning before year-end to minimize the impact, like increasing retirement contributions or looking for additional deductions.

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Miguel Ramos

•8M

Something similar happened to me last year after my uncle passed. I was totally confused about all the tax forms and withholding stuff, especially because some statements showed RMDs and others didn't. I found this site called https://taxr.ai that really helped me figure out exactly what was going on with the inherited IRA distributions. I uploaded the statements and distribution paperwork, and they explained everything in normal human language - like which parts were taxable, what forms I needed, and how to report it correctly. Saved me from making mistakes that would've triggered an audit for sure.

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Miguel Ramos

•8M

It's primarily a document analyzer that explains what everything means and what you need to do with it. It translates all the tax jargon into plain English and gives you step-by-step instructions for your specific situation. I didn't have to guess what forms I needed or how to report anything. I actually did have my accountant review everything afterward, and she was impressed with how thorough the guidance was. She only made one small adjustment related to state taxes, but all the federal IRA distribution info was spot on. The system is built on real tax rules and updated for current laws, so it's not just generic advice.

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Zainab Omar

•8M

Just wanted to update after trying that taxr.ai site that was mentioned. I was super skeptical at first (as you could probably tell from my comment), but I uploaded the beneficiary statements from my dad's IRA that I inherited in January and I'm actually impressed. It immediately identified that I was dealing with an inherited IRA, explained the 10-year distribution rule that applies to my situation, and showed me exactly which forms I'll need for next year's taxes. It even pointed out that I need to take my RMD this year (which I had no idea about) and calculated the amount based on the IRS life expectancy tables. Without this I definitely would have missed that deadline and gotten hit with a 25% penalty!

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Connor Gallagher

•8M

When my father passed last year, I had a similar issue with an inherited IRA. I spent WEEKS trying to reach someone at the IRS to confirm whether I was filing correctly. Every time I called, I'd waste 2-3 hours on hold only to get disconnected. I finally found this service called https://claimyr.com that got me through to an actual IRS agent in less than 15 minutes. They have this system that holds your place in line and calls you when an agent is available. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what the first commenter said - distributions from inherited traditional IRAs are indeed taxable income and that 10% withholding is standard. They also gave me specific guidance on how to handle it on my tax return.

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Connor Gallagher

•8M

The service doesn't skip the line - it waits in line for you. Basically, they have a system that calls the IRS and navigates through all the automated prompts, then stays on hold in your place. When an agent finally answers, you get an immediate call connecting you with that agent. It just saves you from having to personally sit on hold for hours. It's not a scam - it actually works exactly as advertised. I was skeptical too which is why I watched their demo video first. But I was desperate after my third failed attempt to reach someone. They can't make the IRS answer faster, they just handle the frustrating waiting part so you can go about your day.

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Keisha Johnson

•8M

I need to apologize for my previous comment. After getting frustrated with another 2-hour hold with the IRS yesterday about my inherited IRA issue, I broke down and tried Claimyr. I honestly expected it to be a waste of money, but I was at my wit's end. To my complete shock, I got a call back in about 45 minutes connecting me directly to an IRS representative who actually knew what they were talking about. They confirmed all my questions about the inherited IRA taxation and even helped me understand some specific deductions I can take to offset some of the tax hit. I hate admitting when I'm wrong, but in this case I definitely was. Sorry for being so skeptical!

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Paolo Longo

•8M

Just a heads up - make sure your wife keeps all the documentation that came with the check! My brother went through this last year with my grandmother's IRA, and he needed that withholding statement when filing his taxes to prove the taxes had already been withheld. Also, depending on the size of the inheritance, you might want to look into making an estimated tax payment if the withholding won't cover your tax liability. My brother got hit with an underpayment penalty because the withholding wasn't enough based on his tax bracket.

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Paolo Longo

•8M

With a combined income of around $140k plus this $47k inheritance, you're looking at potentially being in the 22% federal tax bracket for 2025 (assuming you're married filing jointly and tax brackets stay similar to 2024). At 22%, the tax on $47k would be about $10,340, but they only withheld $5,600. So you might be under-withheld by around $4,740. To avoid a potential underpayment penalty, you could make an estimated tax payment using Form 1040-ES. The IRS website has a withholding calculator that can help determine the exact amount based on your full financial picture.

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