In a release that was fairly unsurprising in content, the Internal Revenue Service issued Revenue Ruling 2025-15 to address a payor’s tax withholding and reporting obligations with respect to stale and reissued retirement plan distribution checks. Importantly, to the extent that payors have been following the IRS’s prior guidance in Revenue Ruling 2019-19 and the existing reporting and withholding regulations, the ruling does not require any changes to existing practices.
Moreover, Revenue Ruling 2025-15 (the Ruling) confirms that a payor is not entitled to unwind required withholding or otherwise make an adjustment or obtain a refund of tax withholding because a check has not been cashed. Nevertheless, because the IRS had not previously summarized these principles together in a single release, the Ruling provides helpful clarity to payors and plan administrators.
Ruling Scenario
The Ruling addresses a scenario in which a distribution is made from a qualified retirement plan to an individual. A check (Check 1) was issued in the amount of the individual’s accrued benefit less federal income tax withholdings, which were remitted to the Treasury Department.
Check 1 was not cashed within six months of issuance. The plan administrator canceled the stale check and reissued a second check (Check 2) in the amount of the accrued benefit less the amount of withholdings made in connection with Check 1.
The Ruling makes several points that can aide plan administrators in their monitoring of uncashed checks and reissuing payments:
- There is no basis for either an adjustment or refund of taxes withheld and remitted with respect to an uncashed check unless there was an overcollection of FICA or federal income tax withholding. (See Internal Revenue Code Section 6413 or 6414.) Under the facts of the Ruling, the correct amount of tax was withheld and remitted, and the individual’s failure to cash the check does not make the withholding excessive. Therefore, even though the check becomes stale, the payor is not entitled to a refund of the taxes that were withheld. In other words, the failure to cash the check does not change the payor’s withholding and remittance obligations.
- If the amount of the reissued check is equal to or less than the amount of Check 1, then no additional withholding is required when Check 2 is issued as the amount that was required to be withheld was already withheld and reported. If the amount of Check 2 is greater than the amount of Check 1, for example because of earnings, only then will additional withholding be required at the time Check 2 is issued (unless a specific exception applies, e.g., there is no federal income tax withholding required for eligible rollover distributions of amounts under $200).
- Finally, the fact that Check 1 is uncashed or returned as undeliverable has no impact on a payor’s obligation to report distribution and tax withholding on a Form 1099-R for the year of the distribution. Consistent with this requirement, only if the amount of Check 2 is more than the amount of Check 1 will Check 2 be reported when that check is distributed, and the reporting and withholding on Check 2 will be limited to the amount that is in excess of Check 1.
Next Steps
While the Ruling does not blaze any new trails, it does provide a succinct summary of a payor’s withholding and reporting obligations when a retirement plan distribution payment is canceled and reissued. Retirement plan administrators and payors should consider reviewing their benefit payment practices to ensure they are in compliance with applicable law. Please reach out with any questions.