IRS Clarifies Tax Withholding on Uncashed Retirement Plan Checks

To delay taxes, participants who aren't 'missing' have refused to cash checks

By Marjorie Martin and Joanne Jacobson © Buck August 20, 2019
IRS Clarifies Tax Withholding on Uncashed Retirement Plan Checks

New IRS guidance confirms how retirement plan administrators should handle reporting and income tax withholding for distributions to participants who are not "missing" by affirming the principle that a taxpayer cannot change the timing of taxation merely by refusing to cash a check. The IRS says it is still analyzing other situations such as those that involve missing individuals with plan benefits remaining to be paid.


Prior to 1981, qualified retirement plan distributions were taxable to participants when actually paid, distributed or made available (that is, constructively received). Congress eliminated the "made available" language to reduce plan administrative burdens because of restrictions plans created to avoid constructive receipt. However, some confusion remains for plan administrators about when to report plan distributions in situations where participants fail to cash checks they've received.

In the case of missing participants, there is an additional question about whether an actual distribution has been made where the check was not received because the plan's records do not contain a valid address.

Taxation, Reporting and Withholding

In Revenue Ruling 2019-19, issued Aug. 14, the IRS addresses when a distribution is taxable to a distributee and plan obligations for reporting and withholding for the distribution. Under the situation addressed in the ruling, a distribution of $900 was required to be made from a plan to a participant in 2019. Such a distribution might be required, for example, because a plan calls for the automatic payment of all benefits with a value not in excess of $1,000.

The ruling concludes that the distribution is taxable to the participant for 2019 because it was actually distributed in 2019 and could have been cashed. The IRS notes that it is irrelevant whether the individual keeps the check, sends it back, destroys it or cashes it in a subsequent year.

It's irrelevant whether a recipient keeps the check, destroys it or cashes it in a subsequent year.

The fact that the distribution is included in a participant's taxes should propel the participant to cash the check or, at a minimum, think about it.

Consistent with this treatment, the ruling concludes that income tax withholding and Form 1099-R reporting is required for 2019. A plan participant's failure to cash a distribution check received from the plan does not alter the withholding or reporting obligation.

What About Missing Participants?

The IRS notes in this ruling that it continues to analyze other issues involving uncashed checks from eligible retirement plans including situations involving missing individuals with benefits under those plans. Presumably, the tax treatment is less than clear where the plan does not have a current address for a participant and cannot successfully distribute a check to the individual. Note that the Pension Benefit Guaranty Corp. (PBGC) requires payment of the participant's full benefit to them under their missing participant program rather than the amount net of income tax withholding.

In Closing

Retirement plan administrators now have confirmation of their duties in situations where a participant is not missing but fails to cash a check. Stay tuned for more guidance about how to handle missing participants. IRS, Department of Labor and PBGC are aware of the issues and have signaled that, together, they will provide coordinated advice for dealing with that problem.

Marjorie Martin and Joanne Jacobson, J.D., are principals at HR advisory firm Buck. This article originally appeared in the Aug. 16, 2019, issue of For Your Information, produced by Buck's Knowledge Resource Center. © 2019 Buck Global LLC. All rights reserved. Republished with permission.

Related SHRM Articles:

EBSA Missing Participant Investigations Triggered by Failure to Take Distributions, SHRM Online, June 2019

Keep Track of 401(k) Participants So They Don't Go Missing, SHRM Online, April 2018

Missing Plan Participants: DOL, IRS, PBGC, SHRM Express Request


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