IRS clarifies tax treatment for uncashed retirement plan distribution checks

The IRS recently released guidance (Revenue Ruling 2025-15) for retirement plan sponsors and administrators regarding the federal tax treatment of uncashed retirement distribution checks and subsequent reissuances. The ruling clarifies, among other items, that reissued checks do not require duplicate reporting unless the difference in amounts is more than $10.

In Rev. Rul. 2025-15, Employer M administers Plan X, a qualified retirement plan under Section 401(a) that excludes Roth accounts, employer securities and certain health-related benefits. In 2024, Employer M made a designated distribution of Individual C’s $800 accrued benefit, withheld the required federal income tax, and mailed the net amount (Check 1), which was never cashed and later canceled. Employer M then issued a second check (Check 2) for the same benefit amount, net of any applicable withholding.

Based on these facts, the IRS made the following rulings:

1. If a retirement plan distribution check is issued but remains uncashed, the IRS confirms that no refund or adjustment is available to employers under Sections 6413 or 6414 if the correct amount of tax was originally withheld and remitted. This applies even if the check is canceled or returned.
2. If a second check is issued, no additional withholding is required if the participant’s accrued benefit at that time is less than or equal to the amount of the first check. However, withholding applies to any increase in benefit value (e.g., due to earnings) since the original distribution.
3. The original distribution must be reported on Form 1099-R, including the full distribution amount and tax withheld, regardless of whether the check was cashed. This reporting requirement applies regardless of whether the check is returned as undeliverable or remains uncashed for any other reason
4. A second check is reportable only if the benefit amount exceeds the amount of the original check and the excess is $10 or more.

The IRS noted that revenue rulings represent the conclusions of the IRS on the application of the specific provisions of law addressed in the revenue ruling to the pivotal facts stated in the ruling. Specifically, the IRS indicated that this particular revenue ruling does not address: (1) the appropriateness of mailing a check to an address on file that the plan administrator has reason to believe is incorrect; (2) a situation in which a second check is issued by any person other than the issuer of the original check, including, for example, the Pension Benefit Guaranty Corporation (PBGC) following a transfer of an amount to the PBGC’s Missing Participants Program, or issued to anyone other than the original participant (for example, to the participant’s surviving spouse); (3) any aspect of the PBGC’s Missing Participants Program; or (4) issues under Title I of the Employee Retirement Income Security Act (ERISA). The IRS also noted that the PBGC is considering possible modifications to its Missing Participants Program regarding the treatment of prior tax withholding in connection with the transfer of benefits to the program.

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