USPS Calendar Year-End Close Manual –
The W‑2 Process
The IRS requires that Form 1099 be submitted for payments made to the estate or beneficiary of a deceased employee.
Information on deceased employee compensation paid to the estate or beneficiary is not maintained in USAS. Therefore, agencies must keep internal records to produce 1099s in this situation. USPS agencies receive a query that lists deceased employees to assist with 1099 processing.
Payments made to employees, awards given to employees or fringe benefits provided to employees are generally reported on Form W‑2. However, in the following circumstances, wages, awards or fringe benefits may be reported on Form 1099-MISC.
Wages or Other Compensation of a Deceased Employee
After the death of an employee, if the employee completed at least six months of continuous state employment during his or her life time, the state shall pay the employee’s estate or beneficiary for the employee’s accumulated vacation leave (in full) and one-half of the employee’s accrued sick leave (not to exceed 336 hours).
Refer to the Texas Payroll/Personnel Resource website for more information on calculating a lump sum payment of accrued vacation and sick leave for a deceased employee and the guidelines for making a payment to the estate of or beneficiary of a deceased employee.
A new mail code for the employee’s estate or beneficiary must be established on TINS before the payment is processed.
A lump-sum payment for accrued vacation and sick leave upon the death of a state employee is not subject to deductions for employee retirement contributions to the optional retirement program, the Teacher Retirement System of Texas (TRS) or the Employees Retirement System of Texas (ERS).
Payments for wages or other compensation (e.g., Special Pay 18 and Special Pay 19) made to a deceased employee’s estate or beneficiary must be reported on Form 1099-MISC. Report these wages in Box 3 (Other Income). Other income may include prizes, awards, taxable damages or other taxable income. In addition, these payments may be reportable on Form W‑2 for social security and Medicare taxation if paid in the year of death.
If paid in the year of death:
- Social security wages are reported on Form W‑2, box 3
- Report social security taxes withheld, box 4
- Report Medicare wages, box 5
- Report Medicare taxes, box 6
If paid in the year after death, the payment is:
- Exempt from social security withholding, no Form W‑2 reporting
- Exempt from Medicare withholding, no Form W‑2 reporting
Note: Whether the payment is made in the year of death or after the year of death, you must also report the payment on Form 1099-MISC for the payment to the estate. Report the payment in box 3. Enter the name and TIN of the payment recipient on Form 1099-MISC. For example, if the recipient is the estate, enter the name and TIN of the estate.