1099 for Deceased Employee Wages: Timing, FUTA, and Penalties

When an employee dies with unpaid wages, accrued vacation, or other compensation still owed, whether you issue a 1099 for the deceased employee’s wages, a W-2, or both depends on one thing: the calendar year you actually make the payment. Pay it in the same year the employee died, and you issue both forms — a W-2 covering only Social Security and Medicare, plus a Form 1099-MISC to the estate or beneficiary for income tax purposes. Pay it in any later year, and you skip the W-2 entirely and issue only the 1099-MISC.

Federal income tax withholding never applies to wages paid after death, regardless of timing. The recipient handles the income tax on their own return.¹

Payment in the Same Calendar Year as Death

When you pay accrued wages or vacation to a beneficiary or estate during the calendar year the employee died, Social Security and Medicare taxes still apply. You withhold FICA, but you do not withhold federal income tax. The payment then gets reported twice: on the deceased employee’s W-2 in the FICA boxes only, and on a separate 1099-MISC issued to whoever received the money.

What Goes on the W-2

Include the post-death payment in Box 3 (Social Security Wages) and Box 5 (Medicare Wages and Tips), together with any wages the employee earned and received before death. Report the Social Security tax withheld in Box 4 and the Medicare tax withheld in Box 6. Pre-death wages that were already subject to normal income tax withholding still go in Box 1. The post-death payment does not.²

Boxes 3 and 5 will be larger than Box 1. That mismatch is correct. It reflects the fact that the post-death payment is subject to FICA but not income tax withholding. The W-2 is issued under the deceased employee’s name and Social Security number.

Worked Example

The 2026 W-2/W-3 instructions illustrate the split. Before Sam’s death on June 15, Sam earned $10,000 in wages with $1,500 in federal income tax withheld. Sam’s employer still owed $2,000 in wages and $1,000 in accrued vacation. The employer paid the $3,000 to Sam’s estate on July 20 of the same year. The W-2 shows:

Box 1 (Wages): $10,000, pre-death wages only
Box 2 (Federal Income Tax Withheld): $1,500
Box 3 (Social Security Wages): $13,000, pre-death $10,000 plus post-death $3,000
Box 4 (Social Security Tax Withheld): $806.00, 6.2% of $13,000
Box 5 (Medicare Wages): $13,000
Box 6 (Medicare Tax Withheld): $188.50, 1.45% of $13,000

The employer then issues a separate 1099-MISC to Sam’s estate showing $3,000 in Box 3, even though FICA was withheld on that same amount. The gross figure goes on the 1099-MISC.²

Why Both Forms Are Required

The two forms cover two different tax obligations for the same dollars. The W-2 gives the deceased employee proper Social Security and Medicare credit. The 1099-MISC tells the IRS and the recipient that the payment is taxable income to whoever received it. Neither form alone does both jobs.

The 1099-MISC uses the recipient’s own taxpayer identification number, not the deceased employee’s SSN. If the estate received the payment, use the estate’s EIN. If an individual beneficiary received it, use their Social Security number.³

Payment in a Later Calendar Year

If you do not pay the accrued wages until a calendar year after the employee died, reporting is simpler. No FICA. No income tax withholding. No W-2. You report the entire payment on Form 1099-MISC in Box 3 (Other Income) using the recipient’s name and TIN.³

Box 3 is for income not subject to self-employment tax. Do not use Box 1 (Rents) or Box 7. The form goes to the estate or named beneficiary, and that closes out your reporting obligation for the payment.

When Constructive Receipt Changes the Analysis

The split reporting rules only apply to compensation the employee earned but could not yet access before death. If a paycheck was available and the employee could have picked it up or cashed it while still alive, the IRS treats those wages as received before death. You report them normally in Box 1 of the W-2, with standard income tax and FICA withholding, even if you later reissue the check to the estate or a beneficiary.²

A direct-deposited paycheck that hit the employee’s bank account two days before death is not a post-death payment, even if the estate is the one that ultimately spends the money. Accrued but unpaid wages and unused vacation time are the situations the 1099-MISC rule was built for.

Getting the Recipient’s TIN

Before you can issue a 1099-MISC, you need the recipient’s correct name and taxpayer identification number. Request a completed Form W-9 from the estate representative or individual beneficiary before making the payment.⁴

If the payment goes to the estate, the estate needs its own EIN. The estate representative applies using Form SS-4, which can be filed online, by fax, or by mail. If a return or information form is due before the EIN arrives, the IRS instructs filers to write “Applied For” with the application date in the EIN space.⁵

If the recipient fails to provide a TIN, or if the IRS notifies you that the TIN is incorrect, you must apply backup withholding at 24% on the payment. This applies to all reportable 1099-MISC payments, including deceased employee wages. The withheld amount gets deposited with the IRS and credited against the recipient’s eventual tax liability.⁶ Reach out to the estate representative or beneficiary early. If nobody responds and you cannot get a TIN, withhold 24% and report the withholding on the 1099-MISC.

Filing Deadlines

Deceased employee reporting follows the same deadlines as any other W-2 or 1099-MISC. Each late form triggers a separate penalty.

Form W-2, to employee or estate and to SSA: January 31 of the year following the tax year, for both paper and electronic filing. No automatic extension is available.⁷
Form 1099-MISC to the recipient: January 31.⁸
Form 1099-MISC to the IRS: February 28 on paper, or March 31 electronically.⁸

If a deadline falls on a Saturday, Sunday, or legal holiday, it shifts to the next business day.

Don’t Forget FUTA

Federal Unemployment Tax follows the same timing split as FICA. Wages paid in the same calendar year as the employee’s death are subject to FUTA. Wages paid after that year are exempt.¹ FUTA is an employer-only tax, so it does not appear on either the W-2 or the 1099-MISC, but you still need to account for it on Form 940 when the payment falls in the year of death.

Penalties for Getting It Wrong

The IRS imposes separate penalties for filing incorrect or late information returns with the IRS and for furnishing incorrect or late statements to recipients. For 2026 returns, the per-form penalties are:

Filed up to 30 days late: $60 per form
Filed 31 days late through August 1: $130 per form
Filed after August 1 or not filed at all: $340 per form
Intentional disregard: $680 per form, with no maximum cap

These penalties apply separately to each form. If you owe both a W-2 and a 1099-MISC for the same payment and botch both, you face penalties on each one.⁹

The most common mistakes are not lateness. They are reporting the payment in the wrong box, issuing only one form when two are required, and using the deceased employee’s SSN on the 1099-MISC instead of the recipient’s TIN. All count as filing an incorrect return and carry the same penalty schedule.

What the Recipient Does With the 1099-MISC

The recipient uses the 1099-MISC, not the W-2, to determine the taxable amount. The IRS classifies this as Income in Respect of a Decedent under 26 U.S.C. § 691.¹⁰ An individual beneficiary reports the amount on Schedule 1 (Form 1040), Line 8z.¹¹ An estate reports it on Form 1041, and if the estate then distributes the income, the beneficiaries pick it up through a Schedule K-1.

Recipients whose estate paid federal estate tax on the same income may qualify for a deduction under IRC § 691(c) to prevent full double taxation. In practice, this only matters for larger estates.¹²

State Rules Can Differ

State and local payroll tax rules do not always match the federal approach. Some states require income tax withholding on post-death wages even when federal rules prohibit it. Some require the payment to appear in state wages in Box 16 of the W-2, creating a mismatch with the federal figures in Box 1. If the payment falls in a later calendar year and needs only a federal 1099-MISC, the state may still require its own equivalent form. Check the guidance for the state where the employee worked before finalizing the paperwork.

1
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
2
Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026)
3
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
4
Internal Revenue Service. Instructions for the Requester of Form W-9
5
Internal Revenue Service. Instructions for Form SS-4 (12/2023)
6
Internal Revenue Service. Backup Withholding
7
Social Security Administration. Deadline Dates to File W-2s
8
Internal Revenue Service. Publication 1099 General Instructions for Certain Information Returns (For Use in Preparing 2026 Returns)
9
Internal Revenue Service. Information Return Penalties
10
Office of the Law Revision Counsel. 26 USC 691 – Recipients of Income in Respect of Decedents
11
Internal Revenue Service. Schedule 1 (Form 1040) 2025
12
Internal Revenue Service. Publication 559, Survivors, Executors, and Administrators