Posted by Advantage Tax Services, Inc.

Basic Information About Unclaimed Property tax

Basic Information About Unclaimed Property tax

What is Unclaimed Property?

Unclaimed properties funds that are in possession the of a holder that is owned by or owed to someone else. In another word, they are known as “abandoned property” or “escheat”.

What are risky items for the unclaimed property?

Where should you look, when you need for potentially risky unclaimed property items in your organization? You will want to have a look at these items to make sure you have a proper record of all unclaimed property that is created by your company.

•Unsupported /Outstanding transactions – this sometimes includes accounts receivables, uncashed dividends, accounts payable, voided transactions, uncashed dividends, e.t.c.

•Credit balances and deposits – this includes the contents of deposit boxes, rebates, customers overpayments. Refunds e.t.c. customer overpayments, contents of safe deposit boxes

•Honorary/ Gift certificates and gift cards. 

Causes of risk of liability

Numerous issues trigger or cause the risk of unclaimed property liability. Often times, the risk attached to unclaimed property is not taken with seriousness, so most companies don’t bother to comply. There’s always an outright refusal to recognize that a problem might exist later.

Refusal to make state inquiries can lead to a major red flag. Most companies don’t assign any department to be responsible for unclaimed property reporting and compliance, which means no one cares about these properties.

Unclaimed Property and Your Business Bookkeeping

Bookkeeping can be essential when you need to report the unclaimed check to your state; you might want probably want to consider voiding the check and putting the cash into an escrow account. 

Doing this will make sure that funds are not mismanaged or mistakenly spent. You should make sure to have paid the employment taxes on this fund. Be very meticulous with the records about the employee or payee and be sure to keeping contact with the person regularly. 

How Do I Report and Pay to State

The principle of escheat; Escheat simply means to surrender, and it is based on common law, that states that unclaimed property be surrendered to the state, and should not be kept by the person who has it. The rule implies that the property that doesn’t belong to you, that the state has the capability and resources to finding the individual or company that has the ownership right.

In a scenario where the owner is not found, the state holds to the property. These types of property includes escrow funds, checks, accounts payable, commission checks, payroll checks, e.t.c.  

What Are The State Laws on Unclaimed Property

All states have laws governing unclaimed property which specifies the time, periods and process. The state laws are listed below:

•The state describes a period of no contact regarding the property.

•Annually there is a period in trying to find the owners of the unclaimed property, sending of mails to their last known address. It is always advised to send these mails by a certified mail, so you can have a record of trying to contact the company or individual. 

•After this has been done, you must make sure you submit a report to the state alongside a remittance of amounts due to the owners who you are yet to make contact with.

State Laws of Unclaimed Paychecks

Unclaimed paychecks are also subjected to the escheat laws as unclaimed property. The law governing the state where the employee last worked applies. If you happen to have a paycheck that remain unclaimed over a long period of time, then you must follow the same process in reporting this to the state.

How Do I Know My State Escheat Laws

You can get your state escheats law, through searching on the website of your state treasurer, department of revenue, or from any taxing agency. And remember, each state has different requirements.

How Do I Account for Unclaimed Property

Accounting for any unclaimed property is determined by the likelihood of the property being claimed eventually. In most cases, it is best to count the loss from an accounting standpoint, even before you take the step of reporting to the state. You should talk to your tax advisor to discuss your list of unclaimed property. 

3 Steps on How to Deal With Unclaimed Property

•Firstly find out the laws of your state, and for all the states you have employees working. Most importantly pay attention to the period after which you must report any uncollected property to the state.

•Secondly, draw a plan to help capture all the informations on the uncollected property. You should also review the list by sending out notifications every year.

•Lastly, you should set a time each year for reporting and paying for all uncollected property.

State Audits

Finally, always remember that all uncollected property does not belong to your company.  States can still do an audit for any uncollected property, and can most times attracts penalties and fines for non-compliance with the state. 

Advantage Tax Services, Inc.
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