STATE OF CONNECTICUT
	OFFICE OF THE STATE COMPTROLLER
Kevin Lembo State Comptroller	55 ELM STREET HARTFORD, CONNECTICUT 06106-1775	Martha Carlson Deputy Comptroller

MEMORANDUM NO. 2011-02

February 4, 2011

TO THE HEADS OF ALL STATE AGENCIES

I. PURPOSE

This memorandum supersedes Memorandum No. 2008-28 dated August 15, 2008 and provides the Core-CT Earnings Codes for payment of deceased employees' wages, the Expenditure Account, and Internal Revenue Service (IRS) reporting procedures.

II. AUTHORITY

Section 5-253 of the Connecticut General Statutes (CGS) authorizes payment for extra hours of work and accumulated vacation allowance upon the death of a state employee and details the terms under which such payment is made.

In addition, the IRS provides direction for reporting the payment of deceased employees' wages as a special reporting situation in the Instructions for Form W-2.

III. DEATH NOTIFICATION PROCEDURES

Agencies must immediately report the death of an employee to the Comptroller's Office on Form CO-638, "Notice of Death of State Employee". Pursuant to CGS Section 5-253, the payment of extra hours of work and accumulated vacation allowance should be made to the surviving beneficiary designated under the State Employees Retirement System (SERS) or if no beneficiary has been designated to the estate of the deceased. If the employee was a member of SERS or the Alternate Retirement Program, a request should be made for the name of the beneficiary designated on the employee's Form CO-931, "Designation of Retirement System-Tier-Plan-Beneficiary". If the employee submits an application for retirement benefits from the State Employees Retirement System and dies before the targeted effective date of retirement, the name of the designated beneficiary must be obtained from the Income Payment Election form submitted to the Retirement Services Division with the retirement application.

• Forward one copy of the CO-638 to the Retirement Services Division's Data Base Unit. Please include a copy of the death certificate. If an employee's spouse is eligible for a Pre-Retirement Death Benefit under Section 5-165(a), please notate the form where indicated and forward the retirement application to the Retirement Services Division, Audit Unit.
   
• Forward one copy of the CO-638 to the Healthcare Policy and Benefit Division's Group Life Insurance Unit if the employee participates in Group Life Insurance and/or Supplemental Life Insurance.
   
• Forward one copy of the CO-638 to the Healthcare Policy and Benefit Division's Employee Benefits Unit if the employee participates in one or more of the following programs: Deferred Compensation 457 Plan (DEFING), 403(b) Plan (TSAING), Roth 403(b) Plan (CTROTH), Dependent Care Assistance Program (DCAP), Supplemental Benefits Program (COLLIF, COLSTD, HALIB, HAIMET, LIFING, LIFMDS, LIFTRM, LTDISB) and/or Transportation Fringe Benefit Program (QTFPRK, QTFTRN).
  
  

IV. PAYROLL PROCEDURES

Payments whether made in the same calendar year the employee died or made after the calendar year of the employee's death must be processed through payroll. All wages due to the employee, including but not limited to regular earnings, vacation pay, longevity, sick pay and overtime, must be combined and paid under the appropriate Earnings Code listed in Section V of this memorandum. Agency payroll staff must close all active deductions other than retirement, group life insurance, supplemental group life insurance, medical, prescription and dental prior to, or at the time of the final payment. No deductions, other than retirement, group life insurance, supplemental life insurance, medical, prescription, dental and FICA/Medicare (see tax and deduction requirements associated with each Earnings Code in Section V), should be made from this payment.

Agencies must contact the Healthcare Policy and Benefit Division's Employee Benefits Unit to process suspension of any Deferred Compensation 457, 403(b), Roth 403(b), DCAP reductions and/or Supplemental Benefits and Transportation Fringe Benefit Program deductions.

Agencies must ensure that employee and state share deductions are taken for the full month of coverage during the month of the employee's death for group life, supplemental group life insurance, medical, prescription and dental insurance coverage.

V. EARNINGS CODES

The following earnings codes must be used for all deceased employee payments.

DT1, YEAR OF DEATH SALARY - This earnings code is to be used to pay all earnings owed (other than sick pay) when the payment is made in the same year the employee died. It is not subject to Federal or State Withholding Tax. It is subject to FICA, Medicare and Retirement Contributions.

DT2, YEAR OF DEATH SICK - This earnings code is to be used to pay a lump sum sick payment when the payment is made in the same year the employee died. It is not subject to Federal or State Withholding Tax or Retirement Contributions. It is subject to FICA and Medicare.

DT3, YEAR AFTER DEATH SALARY - This earnings code is to be used to make a salary payment (other than sick pay) when the payment is made in the year after the employee died. It is not subject to Federal or State Withholding Tax, FICA, or Medicare. It is subject to Retirement Contributions.

DT4, YEAR AFTER DEATH SICK - This earnings code is to be used to make a lump sum sick payment when the payment is made in the year after the employee died. It is not subject to Federal or State Withholding Tax, FICA, Medicare, or Retirement Contributions.

Failure to use the appropriate death payment earnings code will lead to Federal and State tax compliance issues.

VI. EXPENDITURE ACCOUNT

The following expenditure account is to be used for the payment of accrued sick leave and vacation upon the death of a state employee.

VII. REPORTING TO THE IRS

When an employee dies, any accrued wages, vacation pay, and other compensation paid after the date of death must be reported to the IRS. The Comptroller's Office will report the payment on the employee's Form W-2 and/or Form 1099-MISC to the beneficiary or estate, as appropriate.

• Payment Made in the Year of Death

If the payment is made in the same calendar year the employee died, FICA and Medicare taxes on the payment must be withheld and the payment reported on the employee's Form W-2 as Social Security and Medicare wages. This will ensure the deceased employee's survivors receive the benefit of proper Social Security and Medicare credits.

 

The payment must also be reported on Form 1099-MISC, Miscellaneous Income, as a payment to the beneficiary or estate. The name and taxpayer identification number of the beneficiary or estate must be used on Form 1099-MISC.

• Payment Made after the Year of Death

If the payment is made after the calendar year of death, it is not subject to FICA and Medicare taxes and is not reported on Form W-2.

 

However, the payment must be reported on Form 1099-MISC, Miscellaneous Income, as a payment to the beneficiary or estate. The name and taxpayer identification number of the beneficiary or estate must be used on Form 1099-MISC.

VIII. QUESTIONS

Questions concerning this memorandum may be directed to the Office of the State Comptroller as follows:

Beneficiary Questions: Retirement Services Division, Data Base Unit, (860) 702-3515;

Group Life Insurance and Supplemental Life Insurance:
Healthcare Policy and Benefit Division
Group Life Unit, (860) 702-3537;

Deferred Compensation 457, 403(b), Roth 403(b) Plan, DCAP, Supplemental Benefits and Transportation Fringe Benefit Program:
Healthcare Policy and Benefit Division
Employee Benefits Unit, (860) 702-3543;

Medical, Prescription and Dental Insurance:
Healthcare Policy and Benefit Division
Central Benefits Unit, (860) 702-3535;

Payroll Procedures: Payroll Services Division, (860) 702-3450;

Memorandum Interpretation: Fiscal Policy Division, (860) 702-3440.

KEVIN LEMBO
STATE COMPTROLLER

KL:RE

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