Uncashed Check? IRS Ruling on Retirement Plan Distributions

The IRS has explained how to handle taxes if a retirement plan participant doesn’t cash a distribution check and another check is issued.

When a company’s retirement plan administrator issues a distribution check to a participant, federal income tax must be withheld and remitted to the Treasury Department. Plus, the retirement plan information must be reported to the IRS on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

But plan administrators face uncertainty about withholding and reporting when they have to cut another check because the first one has become stale.

The IRS recently addressed this situation in a new revenue ruling, providing clarity for employers regarding retirement plans.

Real-Life Example

In Revenue Ruling 2025-15, the IRS explained that a plan administrator had made a designated distribution (of $800) with respect to a participant’s accrued retirement plan benefit by:

• withholding federal income tax
• remitting that amount to the Treasury Department, and
• mailing a check for the remaining amount to the participant at the address on file.

Six months passed, and the participant hadn’t cashed the check, so the plan administrator canceled that check and issued a second one. Given that the accrued benefit in the retirement plan was less than or equal to the amount in the first check, federal income tax didn’t need to be withheld from the second check.

However, if the amount of the accrued benefit had been greater at the time the second check was issued, then the excess amount would be a separate designated distribution subject to withholding.

Furthermore, regarding the federal income tax withheld from the first check, the employer wasn’t entitled to a refund or an adjustment.

Reporting to the IRS

The revenue ruling also discussed the reporting required based on the situation the plan administrator faced with the two checks.

Check 1: On Form 1099-R, the employer had to report the designated distribution (of $800) in box 1 and box 2a, and report the federal income tax withheld in box 4.

Check 2: The employer wasn’t required to report the distribution on Form 1099-R.