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Glenn Hegar  ·  Texas Comptroller of Public Accounts

General Provisions
Payment of Final Wages to the Estates of Deceased Employees

Background

Customarily, state agencies and institutions of higher education issue final payments of compensation for a deceased state employee to an estate of the deceased. However, in rare circumstances these final payments may be issued to an authorized spouse. A spouse is authorized only if:

  • A sworn written statement that is notarized (affidavit) is furnished to the paying agency, and
  • The affidavit states:
    • The person that swears under oath (affiant) is the employee’s surviving spouse, and
    • No person has qualified as an executor of the will or is an administrator of the employee’s estate.

The transaction is made in good faith, and agencies are not required to determine if an affidavit is truthful. The person who accepts payment must answer to any person having prior right to the disbursement.

As in any legal matter, payroll officers should consult with their agency’s general counsel to resolve legal questions related to disposition of final payments of compensation for deceased state employees.

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Special Tax Considerations

If an employee dies after receiving a paycheck but before cashing it, the agency should reissue the payment to the employee’s estate for the same net amount, since income taxes were properly withheld. The wages and amounts withheld must be reported on the deceased employee’s Form W-2.

Wages paid to a deceased employee’s estate after the employee dies but in the year of death are not subject to federal income tax (FIT) withholding. They are, however, subject to Social Security and Medicare withholding under the Federal Insurance Contributions Act (FICA). Therefore, the employer must report the Social Security and Medicare wages and the amounts withheld on the deceased employee’s Form W-2. The amount of taxable income should be reported on Form 1099-MISC in the name of the payment’s beneficiary.

Wages paid to a deceased employee’s estate after the year of the employee’s death are not subject to FIT withholding or Social Security and Medicare withholding and should only be reported on Form 1099-MISC in the name of the payment’s beneficiary.

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Definitions

Administrator
If the person’s will did not name anyone to be the executor, or the person(s) named in the will refuses or cannot act, the probate court will appoint someone to act as the administrator of the will. The administrator works with the court to see that the decedent’s financial affairs are resolved and the remainder of his or her estate is distributed according to the instructions spelled out in the will.
Compensation
Includes salary, compensatory per diem, expense per diem, reimbursement for expenses, longevity pay and fees associated with the appointed or elected office.

Sources

Texas Probate Code Annotated, Chapter VI, Section 160(b) (Vernon 2012); IRS Publication 15, Employee’s Tax Guide; IRS Publication 15-a, Employer’s Supplemental Tax Guide.

Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
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