1041 Tax Withholding error

Ducks3266 · #1 (**permalink**) 03-01-2014, 06:30 PM

I mistakenly had Federal and state taxes withheld from a fiduciary trust distribution, which withholding was credited to the account of the trust and not my SSN. The trust owes no tax because all income is distributed. If the withheld taxes are shown on 1041 line 24e as income tax withheld, it creates an overpayment and refund in the amount of the withheld tax. The mistake made is the refund will be made out to the Trust, which I believe can only be deposited into the trust account. The only way to get the withheld tax back is to make another distribution, which will be recorded as a taxable distribution on next year's K-1. Can this be right?

Is there any way to either have the withheld amount credited to my SSN or have the refund made out to me personally? My hope is to avoid paying tax on getting the withheld taxes back.

Thanks

Wnhough · #2 (**permalink**) 03-02-2014, 03:58 PM

Quote:

Originally Posted by Ducks3266

#1;I mistakenly had Federal and state taxes withheld from a fiduciary trust distribution, which withholding was credited to the account of the trust and not my SSN. The trust owes no tax because all income is distributed. If the withheld taxes are shown on 1041 line 24e as income tax withheld, it creates an overpayment and refund in the amount of the withheld tax. The mistake made is the refund will be made out to the Trust, which I believe can only be deposited into the trust account. The only way to get the withheld tax back is to make another distribution, which will be recorded as a taxable distribution on next year's K-1. Can this be right?

#2;Is there any way to either have the withheld amount credited to my SSN or have the refund made out to me personally? My hope is to avoid paying tax on getting the withheld taxes back.

Thanks

#1; as you said, The trust owes no tax because all income is distributed, then, the trust has no tax so wouldn't it be easier just to have the refund pass-through to the benediciary's sch K-1.even withheld income tax cannot be passed through to beneficiaries on either Sch K-1 or Form 1041-T.

#2;Line 24E is for taxes on income not distributed;

In the case of fiduciary estimated tax payments, made on behalf of a trust, can be passed to the beneficiaries by making an election on or before the 65th day after the end of the trust's taxable year. To make this election, the trustee must complete and file Form 1041-T.i guess you can contact the irs asap for more info in detail; it is up to them

Ducks3266 · #3 (**permalink**) 03-02-2014, 05:59 PM

Thanks for the reply. Sounds like a reasonable solution. I'm curious, if it is possible to show the refund on the following year's K-1 as a tax credit, which would alleviate the re-distribution tax issue, is it possible to allocate the withheld taxes on the current year K-1 as a tax credit?

That would in effect accomplish the same result, but handle the issue within the same tax year, in similar fashion as withheld taxes are reported on a 1099-R.

In either case, I'm guessing the refunded taxes or current year withheld taxes would be reported on K-1, line 13, code U, which is reported on the beneficiary's form 1040, line 62 (Federal income tax withheld from W-2 and 1099).

Thanks again

Ducks3266 · #4 (**permalink**) 03-02-2014, 06:01 PM

Thanks for the reply. Sounds like a reasonable solution. I'm curious, if it is possible to show the refund on the following year's K-1 as a tax credit, which would alleviate the re-distribution tax issue, is it possible to allocate the withheld taxes on the current year K-1 as a tax credit?

That would in effect accomplish the same result, but handle the issue within the same tax year, in similar fashion as withheld taxes are reported on a 1099-R.

In either case, I'm guessing the refunded taxes or current year withheld taxes would be reported on K-1, line 13, code U, which is reported on the beneficiary's form 1040, line 62 (Federal income tax withheld from W-2 and 1099).

Thanks again