Withholding and Reporting Obligations for Re-Issued Distribution Checks
What are a public pension plan’s withholding and reporting obligations when distribution checks remain uncashed, are cancelled, and are subsequently reissued? A recent Revenue Ruling issued by the Internal Revenue Service (IRS) addresses this situation, but Ice Miller LLP and Groom Law Group, both valued NCTR Commercial Associate members, warn that a number of questions and complexities remain regarding plan administrators’ responsibilities in certain situations.
By way of background, the IRS has issued a number of rulings in the past that have concluded that withholding and reporting obligations apply at the time a distribution check is distributed. “This is true even if the check is received but not cashed by the distributee (Revenue Ruling 2019-19) or includes an excess payment that the distributee may be obligated to repay later (Revenue Ruling 2002-84),” explains Ice Miller in their recent Thought Leadership article on this subject entitled “Withholding and Reporting Obligations for Re-Issued Distribution Checks .”
In the new IRS Revenue Ruling 2025-15, this guidance is expended. As Groom describes what it calls the new Ruling’s “rather common,” specific fact pattern:
- Step 1: A qualified retirement plan with no designated Roth accounts makes a distribution and withholds federal income tax in the amount required under Internal Revenue Code Section 3405.
- Step 2: The amount of federal income tax withheld is remitted to the Treasury Department. The plan mails a check for the remaining amount of the distribution to the participant.
- Step 3: The participant fails to cash the check.
- Step 4: The check remains uncashed (in this case, for six months) and is cancelled, and a second check is later reissued to the same recipient.
Groom notes that, pursuant to Revenue Ruling 2019-19, the IRS confirms that, under the facts set forth in Steps 1-3, the individual’s failure to cash the distribution check does not alter the plan’s federal income tax withholding or Form 1099-R reporting obligations. However, Revenue Ruling 2025-15 further addresses the tax withholding and Form 1099-R reporting obligations when the check is subsequently cancelled and a second check is later reissued to the same recipient.
Generally, Groom explains that the withholding rules allow an employer or withholding agent that deducts or pays to the Treasury Department more than the correct amount of tax, to make an adjustment (such as an offset against future withholding obligations) or receive a refund of the excess amount. However, Revenue Ruling 2025-15 now provides that no adjustment or refund is permitted where the first check remains uncashed, even if cancelled, because the amount withheld and paid to the Treasury Department was the correct amount under the applicable withholding rules. Furthermore, Revenue Ruling 2025-15 also confirms that the Form 1099-R reporting requirements with respect to the first check are not altered merely because the check is cancelled, returned as undeliverable, or remains uncashed for any other reason.
If a plan later issues (or reissues) a second distribution check to the person who did not cash the first check, Revenue Ruling 2025-15 provides that no federal income tax withholding is required when the second check is issued, and no corresponding Form 1099-R reporting is required if the amount of the second check is not more than the first (and a proper Form 1099-R was issued with respect to the first check).
If, however, the amount of the second check is more than the first, the additional amount is subject to federal income tax withholding and Form 1099-R reporting (if the additional amount is $10 or more), Groom stresses.
That is, as Ice Miller explains, if the second check, for example, “reflects a higher accrued benefit than that reflected in the first check, then the excess amount is treated as a separate designated distribution subject to its own withholding and reporting obligations at the time it was made.”
Also, Groom says that plans will need to determine if the potential “incremental” withholding and Form 1099-R reporting requirements for second checks “are subject to any limitations period or, instead, require tracking of prior uncashed checks indefinitely.”
Both Ice Miller and Groom also warn that the new Revenue Ruling is based on the very specific, straightforward facts which the IRS analyzed, and a number of questions remain. For example, Ice Miller asks what plan administrators’ obligations are “when plan participants go missing or fail to receive the check.” Groom also stresses “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.”
Finally, Groom notes that 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).” 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, in the case of ERISA plans, the Pension Benefit Guarantee Corporation (PBGC), Groom points out.
Therefore, while helpful in clarifying some obligations of public plan administrators, both law firms believe there are still concerns and complexities that need to be addressed. As Groom underscores, “the uncashed check problem often involves complex facts and circumstances, so [Revenue Ruling 2025-15] will not be a cure-all for plans.”
Will there be more guidance to come? In short, stay tuned.