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Even after an employee dies, the tax paperwork goes on. You have to file a W-2 for whatever you paid the employee during the year. You also use the form to report any accrued wages you paid to his estate in the death year, but not any payments made after the year ends.
You report the pay the employee received before his death in Box 1 on the W-2 and any withheld income tax in Box 2. In Boxes 3 and 5, report the total paid to the worker. Include any money you paid to his estate after his death. Report not just salary but vacation pay and any other compensation. Report Social Security taxes on the amount in Box 4 and Medicare tax in Box 5.
If you make any post-death payments to the estate, or the worker's beneficiary, you have to send out a 1099-MISC. Note the amount of the payment in Box 3 of that form. One copy of the 1099-MISC goes to the Internal Revenue Service, the other to the beneficiary or the estate executor. If you pay the estate or beneficiary in the year after the death year, you still have to report it on a 1099-MISC.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.