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Death of Employee - How to Handle Payroll California

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  • Death of Employee - How to Handle Payroll California

    I have spent a considerable amount of time trying to find information online and calling the Division of Labor Standards and even Workmen's Compensation but I have not been able to find an answer.

    An employee past away on Thursday night and we were not informed until after business hours on Friday. Payroll will be entered and processed tomorrow afternoon using Intuit's online processing system. We are unsure about the process of reporting a death and if we are supposed to pay to the deceased employee's bank account or to his beneficiary that he names on his life insurance policy.

    The death did not occur while the employee was at work and has not been determined.

    Any help including any other forms we are supposed to be fill out would be greatly appreciated.



  • #2
    As you have not yet issued a check for the employee, you will need to cut the check to the surviving spouse or the estate conservitor (CA state law). You will need to see the affidavit of right and proof of identity.

    Wages paid after an employee's death, but within the year of the death are NOT subject to federal income tax witholding, but subject to social security, medicare and FUTA.

    Although the money is issued to the spouse/conservitor, the taxes must be included on the deceased employee's W2 while the taxable income should be on a 1099 for the beneficiary of the payment.

    I hope that helps. My condolences.


    • #3

      I really appreciate the information you provided. I have spent most of my morning trying to find information and was coming up empty.

      Are there any links you'd be able to provide me that would direct me to this information? I just know that my boss is going to ask and I want to be able to provide her with something.

      Thank you and I appreciate your condolensces. His death was very untimely and far too early for a man his age.


      • #4
        The easy way is a professional publication such as The Payroll Source Book (by the American Payroll Association).

        The hard way is to look at IRS pub 15, pub 15A, the W-2 instructions and the 1099 instructions and key word search "death". If you assemble the various pieces from these four different sources you can eventually figure out what the consolidated rules are.
        "Reality is that which, when you stop believing in it, doesn't go away".
        Philip K. **** (1928-1982)


        • #5

          Thank you for your reply and directions to the places I need to look. I also ordered the book for future reference.


          • #6
            The Payroll Source was what I referenced, but I can give you the statutes governing it according to my book. We lost an employee in my first month and a half of processing payroll and it was a total mess because no one knew how to handle the situation.

            IRC 691(a)(1); 3121(a)(14); 3306(b)(15); REv.Rul 86-109, 1986-2 CB 196; Rev. Rul 71-525, 1971-2 CB 356; Form W2 Instructions.

            I don't have the information on the CA specifics but all that covers is who you can release the payment to, how much can be released and what documentation you need to release it, all else is governed by the Federal Rulings.


            • #7
              Good point. The federal rules have been the same for a long time and are fairly straight-forward once you understand them. However there is a big known hole in the rules. That is the IRS basically just says to make the payment to the "estate" and issue the 1099 to the "estate". However states can and have very different rules on just what this means. Worse, the state rules do not effect the federal rules. If for example, the state says the first $ in payments to the state is exempt from taxation and reporting, that is fine, but the state is talking about state taxes only, not federal. If an employer is in a lot of states, this can get worse then confusing.

              My notes are not current, but I have a indirect quote from the RIA payroll library from 2004 for CA that goes like this:

              "California Maximum amount payable: $5,000 (including unused vacation or other compensation).

              To whom payable: Surviving spouse, conservator, or guardian.

              Conditions of payment: Upon affidavit of right and proof of identity if employer does not know affiant personally. Amount collected from all decedent's employers cannot exceed $5,000. Receipt of affidavit by employer is discharge of liability [ Cal. Prob. Cd. ยง 13601 et seq.]"

              "Reality is that which, when you stop believing in it, doesn't go away".
              Philip K. **** (1928-1982)


              • #8
                My information from '08 states the same information, DAW.

                Also, as the vacation in CA state law belongs to the employee, you should pay that out to the estate as well until you hit the 5K cap.


                • #9
                  DAW & SoCalPayroll:

                  Thank you both tremendously for your help. I obviously have never run into this situation before and didn't think it would ever arise in my employment here since most of our employees are less than 40 years old.

                  The president of our firm spoke with the father of the deceased employee and told us that he did not have a will. He asked that we pay him directly as if he were still alive but I know that that is asking for trouble.

                  I'm thinking I should wait until a guardian or conservator of his estate is named before I cut the check.


                  • #10
                    Originally posted by cstone View Post
                    I'm thinking I should wait until a guardian or conservator of his estate is named before I cut the check.
                    I'm thinking that's a good idea.
                    I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.


                    • #11
                      Just to be clear, if you do not make the payment, the money eventually escheats to the state, so it never can just be kept by the employer. The FICA/W2 actions go against the deceased employee, so there is no reason to not get those out of the way now. The only thing you are missing is the net pay / 1099 action, and I agree with Patty that if you are not sure, best to hold that one up until you are sure.
                      "Reality is that which, when you stop believing in it, doesn't go away".
                      Philip K. **** (1928-1982)


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