Uncashed retirement plan distribution checks present a variety of headaches for plan administrators, and the IRS is looking to help alleviate the pain with recently released guidance pertaining to when a distribution check is issued but remains uncashed and a subsequent check is later issued to the participant.
On July 16, the IRS released Revenue Ruling 2025-15, which clarifies the federal tax withholding and reporting responsibilities of retirement plan administrators and builds on prior IRS guidance, Revenue Ruling 2019-19.
A July 21 Groom Law Group brief on the new guidance notes that it is not a cure-all for plan administrators, as complexities and questions remain.
“For example, there are unique considerations where the distributions include after-tax or Roth amounts, or where the distribution is issued as a direct rollover to another eligible retirement plan or IRA.
The IRS further reminds plans that Revenue Ruling 2025-15 does not address the appropriateness of mailing a check to an address on file that the plan administrator believes is incorrect, or where the second check is issued to anyone other than the recipient of the first check (for example, where the proceeds of a participant’s uncashed check are paid to a surviving beneficiary), Groom’s brief points out. Nor does the guidance address the coordination of withholding and reporting in situations where the liability for an uncashed check is transferred to another payee, such as an insurance company or the PBGC.
Key points of the guidance, as detailed in a July 17 brief from David W. Eckhardt, Partner at Husch Blackwell, include:
1. No refund or adjustment for withholding on uncashed checks
If a retirement plan distribution check is issued and federal income tax is properly withheld and remitted to the IRS, the plan is not entitled to a refund or adjustment of those amounts—even if the participant never cashes the check and it is later canceled. This means the IRS treats the distribution as complete once the check is issued and withholding is remitted, regardless of whether the participant actually receives the funds.
2. Withholding requirements for subsequent checks
If a second check is later issued to the participant (for example, after the first check is canceled due to being uncashed), the withholding requirements depend on the amount.
• If the second check is for the same or a lesser amount: No additional federal income tax withholding is required, since withholding was already applied to the original distribution.
• If the second check is for a greater amount (for example, due to additional accrued earnings): Withholding is required only on the excess amount.
3. Reporting obligations
• Original distribution (Check 1): The full amount of the original distribution (before withholding) must be reported on Form 1099-R for the year the check was issued, even if the check was never cashed or was returned as undeliverable. The amount withheld must also be reported.
• Subsequent distribution (Check 2): If the second check does not exceed the original amount, no additional Form 1099-R reporting is needed. If it does exceed the original amount, only the excess must be reported on a new Form 1099-R for the year the second check is issued, along with any additional withholding.
4. No relief for plan administrators
The ruling confirms that plans cannot recover amounts withheld and remitted to the IRS on uncashed checks through adjustments or refunds. The responsibility for claiming a refund of any over-withheld tax lies with the participant, who may do so when filing their individual tax return.
SEE ALSO:
• DOL Announces Enforcement Relief for Missing Participants
• A More Enlightened Approach to Uncashed Distribution Checks