Charles Read, CPA, USTCP, IRSAC
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Do you know what you are (legally) supposed to do with an unclaimed check from a past employee? If I didn’t know better, I’d assume it was a win for me (the business owner). It’s the ex-employee’s fault for not picking up or claiming their check. I tried and tried but they wouldn’t do it. I’ll just keep the money in my account.
Sound about right?
Well, actually, no.
And, it could get you into trouble down the road.
Three reasons why you get stuck with unclaimed checks.
- The employee is discharged or resigns and fails to pick up or claim any wages owed,
- S/he does not cash a check for whatever reason, or
- A direct deposit is returned and never reclaimed by the employee.
Has any of these happened to you?
Don’t worry. We’re here to tell you what steps you need to take with unclaimed checks to stay compliant and legal with the IRS and your State.
Did you know? State abandoned property laws also apply to an employee’s pay.
According to state abandoned property laws, unclaimed checks (wages) become a form of “abandoned property” and the employer (you) must pay it over to the appropriate state treasury agency if they remain unclaimed for a certain number of months or years.
The state abandoned property laws governing abandoned property are known as escheat laws, because the property “escheats” or reverts property to the state.
Every. State. Does. This.
Here’s what you need to do.
Step 1: Document every contact you made to the ex-employee.
Most states require employers to contact employees in an attempt to keep unclaimed wages from becoming abandoned property.
Step 2: File an annual report with your State.
States also generally require the employer to file an annual report with their State that includes each employee’s full name, last known address, amount and payment date of the unclaimed checks, and the date of the last contact with the employee.
Step 3: Send the unclaimed wages with the report.
With that report, the wages need to be sent to the State Treasury which will “hold on” to the money indefinitely for the individual. As an employer, your responsibility for paying those wages is over when you have submitted those funds and complete information to the State.
Some States put a minimum amount such as $50.00 and below in which the unclaimed wages DO NOT have to be reported or sent to the State.
Check with your State on whether this rule applies to you.
If, in fact, you don’t have to send it to the State because it is too small it needs to be reported as income to the employer and is subject to federal income tax.
What if a past employee contacts you after you submitted it to your State?
Each State maintains a list of unclaimed property including uncashed paychecks. You can tell the ex-employee to go online to the list for every State they have ever lived in and check to see if their name is there to see if the State has money which belongs to them. (You can say that nicer to them if you want to.) The past employee will have to prove their identity before the State will send their check.
When do unclaimed wages become abandoned?
Get the complete list for each state on our website. You can also search Google with the phrase “Escheat Laws + [your state]”.
Let’s hope this never happens to you. But, if it does, you’ll be prepared on how to handle it.
|STATE||UNCLAIMED WAGES BECOME ABANDONED AFTER||STATE||UNCLAIMED WAGES BECOME ABANDONED AFTER|
|Alabama||1 Year||Montana||1 Year|
|Alaska||1 Year||Nebraska||1 Year|
|Arizona||1 Year||Nevada||1 Year|
|Arkansas||1 Year||New Hampshire||1 Year|
|California||1 Year||New Jersey||1 Year|
|Colorado||1 Year||New Mexico||1 Year|
|Connecticut||3 Years||New York||3 Years|
|Delaware||5 Years||North Carolina||2 Years|
|District of Columbia||1 Year||North Dakota||2 Years|
|Florida||1 Year||Ohio||1 Year|
|Georgia||1 Year||Oklahoma||1 Year|
|Hawaii||1 Year||Oregon||3 Years|
|Idaho||1 Year||Pennsylvania||3 Years|
|Illinois||5 Years||Rhode Island||1 Year|
|Indiana||1 Year||South Carolina||1 Year|
|Iowa||1 Year||South Dakota||1 Year|
|Kansas||1 Year||Tennessee||1 Year|
|Kentucky||7 Years||Texas||1 Year; 180 Days if $100 or Less|
|Louisiana||1 Year||Utah||1 Year|
|Maine||1 Year||Vermont||2 Years|
|Maryland||3 Years||Virginia||1 Year|
|Massachusetts||3 Years||Washington||1 Year|
|Michigan||1 Year if More Than $50||West Virginia||1 Year|
|Minnesota||1 Year||Wisconsin||1 Year|
|Mississippi||5 Years||Wyoming||1 Year|