Purpose

Guidance to pay final wages to the beneficiary or estate of a deceased employee.

Wages

1. When handling a deceased employee's wages, following the procedures used for terminating an employee may be helpful.
2. Note that laws regarding this issue vary by state. The isolved University includes the Vertex Guide for Federal and State Withholding for Deceased Worker Pay. An updated guide is provided every month.
3. Uncashed Checks: If the employee dies before cashing a check, void and reissue the same net amount to the beneficiary. Wages are reported on W-2 only.
4. Wages Payable Current Year:  Final payments are not subject to Federal Withholding but are subject to Federal Employment Tax (Social Security, Medicare, and FUTA). Follow state regulations for income tax and unemployment tax. 
5. Wages are reported on the 1099-Misc.  If the client does not already have a 1099M Other Income set one up for them.
6. Wages Payable Following Calendar Year: Earned Wages paid in the following calendar year after the employee’s death are not subject to Federal Employment Taxes. Gross wages are delivered to the beneficiary and reported on Form 1099-Misc in Box 3.

For specific guidance on handling these wages and available paid time off in your state, please use the following link to find contact information for the appropriate state agency.

U.S. Department of Labor - State Labor Offices Phone and Website Information

Setting up the beneficiary/estate as a payee

1. The beneficiary/estate will need to complete a W9 to be set up as a 1099 recipient in iSolved.
2. Once they are set up the wages earned by the employee prior to death can be paid as 1099 wages to the beneficiary/estate with a regular or special payroll run.

Year-End Reporting

1. To accurately report payments related to a deceased employee, the estate or beneficiary must complete a Form W-9 to provide the necessary information for the Form 1099-Misc.
2. The Federal withholding information should be reported in Box 3 under "other income." Please request a Form W-9 to obtain the necessary information. Death benefits paid from deferred compensation plans are also reported on Form 1099-MISC.

Employee Record

When on the Employee Management > Employee Maintenance > General screen there is the option to indicate a “Deceased” status. This field is for informational purposes only.