Tag: unclaimed property

IRS Revenue Ruling 2018-17

Starting this year, the IRS requires holders to deduct the 10% federal tax from traditional IRAs prior to unclaimed property reporting. NAUPA recommends using the TW “Income Tax Withheld” standard deduction code in this case. The value of the property before the deduction should be put in the PROP-AMOUNT-REPORTED field, and the amount after the 10% deduction goes in PROP-AMOUNT-REMITTED.

The majority of states I have contacted have confirmed that they are following the NAUPA guidance, but I have run into a few exceptions, notably Colorado, which currently does not support the use of TW. Colorado asks that holders report and remit the post-deduction amount, without mentioning the federal tax withholding at all. We also have discovered that Mississippi’s system does not recognize TW, and instead requests that the SW deduction code be used instead.

Our software will be updated to create the NAUPA file according to the individual state requirements as more information comes in.

See the entire NAUPA guidance

Dormancy Periods

Being familiar with the applicable dormancy periods is crucial for a successful unclaimed property program. A dormancy period is the length of time that you must hold a property before escheating it to the state, and it typically begins on the date that the funds were first payable. Of course every state has a different set of dormancy periods, and of course they are all subject to change.

The standard dormancy period is three years for most states, but over a third use a five-year standard. Certain property types often have longer or shorter dormancy periods. For example, government-related funds and utility deposits often have shorter periods, typically a year. The majority of states also use a one-year dormancy for payroll and commissions. Money orders and travelers checks almost always have longer dormancy periods.

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