If an employee passes away during the year, you must report the accrued wages, vacation pay, and other compensation paid after the date of death.
Accrued wages paid in the same year as the employee’s death are reportable on Form W-2 and Form 1099-MISC.
Form W-2
- Use employee name and social security number
- Exempt from federal income tax withholding – do not report in box 1 of Form W-2
- Taxable for social security and Medicare – report wages in box 3 and 5 of Form W-2
- Withhold social security and Medicare tax – report tax withheld in box 4 and 6 of Form W-2
Form 1099-MISC
- Use name and Tax Identification Number of the recipient (estate or beneficiary)
- Report federal wages in box 3 of Form 1099-MISC
Accrued wages paid in the year after the employee’s death are reportable on Form 1099-MISC only.
Form 1099-MISC
- Use name and Tax Identification Number of the recipient (estate or beneficiary)
- Report federal wages in box 3 of Form 1099-MISC
- Exempt from federal income tax withholding, social security and Medicare taxes
Death benefits from non-qualified deferred compensation plans are reportable on Form 1099-MISC regardless if they are paid in the year of death or the year after death.
Form 1099-MISC
- Use name and Tax Identification Number of the recipient (estate or beneficiary)
- Report federal wages in box 3 of Form 1099-MISC