Tax Reporting for Deceased Employees

Payments made on behalf of an employee after his or her death, only during the calendar year in which the death occurred, are not subject to employee withholding taxes but must be reported on a W-2 statement for Social Security and Medicare tax purposes.

This is not so in the case of a deceased uniformed employee or DoE teacher who, at the time of death, was on long-term Line of Duty Injury (LoDI) leave continuously for more than six months following the month of injury. In this case, wages and accrued leave are not subject to Social Security and Medicare tax, regardless of the calendar year in which payment is made, by virtue of the employee's long-term LoDI status.

Payments made in the year subsequent to the employee's death are not subject to either withholding taxes or Social Security and Medicare taxes. However, all payments made to the next of kin or beneficiary are subject to withholding taxes in the name of the recipient. Form 1099-MISC will be sent to the recipient for the year in which the payment was made.

Visit the IRS website.