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Wages that were constructively received by the employee while he or she was alive are reported on Form W-2 as any other regular wage payment, even if you may have to reissue the payment in the name of the estate or beneficiary.

If you made the payment in the same year the employee died, you must withhold social security and Medicare taxes on the payment and report the payment on the employee’s W-2 only as social security and Medicare wages to ensure proper social security and Medicare credit is received.  If you made the payment after the year of death, do not report the payment on a W-2, and do not withhold social security and Medicare taxes.  Whether the payment is made in the year of death or after the year of death, you also must report it in Box 3 of Form 1099-MISC, Miscellaneous Income, for the payment to the estate or beneficiary. Use the name and taxpayer identification number (TIN) of the payment recipient on Form 1099-MISC.


1. Enter Stop dates on all voluntary Payroll Items that should not be withheld.
2. Enter Stop dates on the Ohio and OSDI Tax Payroll Items.
3. Enter a Stop date for the City Payroll Item if they DO NOT tax the payment
4. Change the Federal Tax Rate Type to "P" (percentage) and enter 0%(zero) in  The “Rate" field. This prevents Federal tax from being withheld.
5. If retirement should not be withheld, change the Retirement Code to “None” on the Position record.
6. Calculate amount due to employee for most recent payroll. ie. accrued wages (amount earned but not yet paid), unused vacation, etc.
7. Change First Name field on the Employee record to "Estate of " and in the Last Name field enter in the “deceased employee’s name” or change the Name
fields to the Spouse’s name. You will want to check with your Legal or Tax adviser to be sure of the proper usage of name.
8. Process payroll as normal.
9. After pay is complete, change Name fields on Employee record back to original name.
10. Using Adjustments, Click Create and find the employee, select the 001 Federal Payroll item. Choose Type-Total Gross. Enter a Transaction Date that is
in the current Posting Period, (Using a date within the current posting period will reduce the gross for YTD, QTD, FYTD) Enter in the Amount of the Gross paid
to the estate as a negative figure. This amount is reportable on the 1099.
11. Using Adjustments, Click Create and find the employee, select the 001 Federal Payroll Item. Choose Type-Applicable Gross. Enter a Transaction Date that is in the current Posting Period, (Using a date within the current posting
period will reduce the Applicable Gross for YTD, QTD, FYTD) Enter in the Amount of the Applicable Gross paid to the estate as a negative figure. *Note*-Calculate the Applicable Gross on the Federal Tax record by taking the amount of the gross paid to the estate minus any annuities that may have been withheld on that last payment. This amount is reportable on the 1099.
12. In USAS-R go to Core>Vendors, create a Vendor payable to the Estate of the deceased employee. Under Locations, create a location for the vendor entering
the Address details along with marking both PO and 1099 boxes so the vendor is marked as a 1099 vendor. Click on 'Save" to create the vendor. Next, click on
'Vendor Adjustments' and 'create'. Enter a Date, Description and the Gross amount paid to the estate, leaving the Taxable Box checked and post the
adjustment. The amount will appear in the FYTD & YTD Taxable and Total amount fields on the vendor.

•W2 Report may flag a warning for this employee indicating total annuities do not equal total gross less applicable gross. This warning can be ignored. You may want to attach notes to the W2 Report at Year-End
indicating why the warning is valid.
•The total gross on Quarter Report will be short compared to the total gross from the USAS checks processed for the payrolls, by the gross paid to the estate.
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