It’s a fact – if your organization writes checks, it’s likely you have unclaimed property. It’s your responsibility to report your unclaimed property to stay in compliance with your state’s requirements, and if you don’t, there can be steep damages to pay, including interest, penalties and even criminal punishment. Here are some ways to beef up your current processes so that if and when you receive an audit notice, you’ll be ready.
- Analyze your unclaimed property. The low-hanging fruit in this category is outstanding payroll and A/P checks. But it’s very possible that you have some outstanding checks that really aren’t unclaimed property. Analyze outstanding items to see whether they’re reissued checks that should have been voided, or payments that were made twice. Sometimes duplicate payments get lost by being included with another payment. Maybe you wrote a check but the vendor issued a credit so you didn’t actually owe that amount.
- Review your accounting processes. Does your accounting staff follow appropriate procedures for voiding checks? Do they regularly review your accounts receivable?
- Have an established system for reuniting unclaimed property with its owner. Employers should try to contact the former employee if there’s an address on file. In most states, this requirement applies only to unclaimed wages exceeding a specified amount. After a reasonable time, void the check and move the funds to an escrow account pending a claim by the employee or submission to the state.
- And remember, once a check has been issued to pay an employee, the money no longer belongs to the employer. Don’t move the money back into your general checking account, and be sure to pay Medicare, Social Security and unemployment taxes as if the employee had indeed claimed the check.
- Submit and remit unclaimed property reports according to your state’s requirements. Each state has its own laws for unclaimed property, including the length of time that determines whether a check is considered “unclaimed.” The employer must submit a report giving information about the former employee and the abandoned wages to the designated state agency or official, along with transferring the funds to the state’s unclaimed property administrator. Each state has different rules, but November 1 is the due date in most states for unclaimed property filings. In most situations, they must be returned to the state of the employee’s last known address. If no address is known, they should be returned to the state in which the business is located. In addition to unclaimed wages, some states also include employee benefits, such as payments to vacation pay accounts, health care accounts or profit-sharing accounts under these rules.
Why do you care? One word: penalties. States can assess separate penalties for failure to report and another for failure to pay. Again, state laws differ, but penalties for failure to report can range from $100 per day up to 100% of the value of the property, and failure to pay can range from 25% of the property up to 100% of the value of the property.
By beefing up your internal processes, your organization is more likely to be in compliance with your state’s rules so that you can reduce or avoid those unwanted penalties should an unclaimed property auditor darken your doorstep. We’ll talk more about unclaimed property audits in a future article, but in the meantime, if you have questions about your organization’s situation, contact your Mize Houser relationship manager or our Technical Tax Team at 800.234.5573.