Question

An employee picked up and deposited a payroll check on Friday. The employee died the next day. What should payroll do, if anything, regarding the reporting and taxing requirements for payments on the check received on the Friday prior to the employee's death?

A. Payroll has no additional obligation; the check is reported as issued.
B. Reverse the check and tax the earnings for federal income tax only.
C. Reverse the check and reissue it with no tax withholdings.
D. Reverse the check and tax the earnings for social security and Medicare taxes only.

Answer 1

The employer has no additional obligations since the payroll check was already issued to the employee before their death. The earnings should be reported and the taxes, which have been deducted appropriately, should remain as is. No check reversal or withholding adjustments are necessary.

Step-by-step explanation:

When an employee dies after receiving a payroll check, the employer has certain tax obligations to fulfill. The correct action would be A. Payroll has no additional obligation; the check is reported as issued. This is because once the check is issued to the employee, the employer has completed their responsibility regarding payroll taxes, and all the required deductions for Social Security, at 6.2%, and for Medicare, at 1.45%, have already been made prior to the employee's death. Therefore, the employer should report the earnings as they would in any typical pay period, and the fact that the employee has passed away does not alter this obligation. There's no need to reverse the check and reissue it, as the earnings were already reported and taxed appropriately, including amounts for both federal income tax as well as Social Security and Medicare taxes.