Continuing to pay an employee’s salary after their death

Q: We have an employee who died, and we would like to continue paying his salary for the next two months to help his wife. How should we go about doing this? Should we pay her using a 1099 MISC form?

Unfortunately, like many legal questions the answer is “it depends”. The payroll forms and tax withholdings will be different depending on whether the payment is made within the same year as the death of the employee.

If payment is made in the same year, in all likelihood you should issue a W-2 in the employee’s name and withhold social security taxes and unemployment taxes. If the payment is made in a subsequent year, then you should not need to issue a W-2 and or withhold any federal taxes. In both cases, you should issue the widow a form 1099-MISC indicating she has received “Other Income,” listed in box 3.

The state withholding rules vary for payments to widows. Many states also limit how much can be paid to a surviving spouse. Please check the laws in your state and consult with an accountant on taxability issues.

Hannah L. Wurgaft is an attorney with Brann & Isaacson in Lewiston, Maine. She can be reached at 207-786-3566 or hwurgaft@brannlaw.com.