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Susan Combs  •  Texas Comptroller of Public Accounts

General Provisions
Payments to Estates of Deceased Employees

Background

Customarily, state agencies and institutions of higher education issue final payments of compensation for a deceased state employee to an estate of the deceased. However, in rare circumstances these final payments may be issued to an authorized spouse. A spouse is authorized only if:

  • A sworn written statement that is notarized (affidavit) is furnished to the paying agency, and
  • The affidavit states:
    • the person that swears under oath (affiant) is the employee’s surviving spouse, and
    • no one has qualified as a person appointed to execute a will (executor) or is an administrator of the employee’s estate.

Agencies are not required to determine if an affidavit is truthful. The transaction is made in good faith. The person who accepts payment must answer to any person having prior right to the disbursement.

As in any legal matter, payroll officers should consult with their agency’s general counsel to resolve legal questions related to disposition of final payments of compensation for deceased state employees.

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Responsibility for Making the Payment

The state agency or institution of higher education that employed a state employee immediately before the employee’s death is responsible for making the lump sum payment of vacation and sick leave to the employee’s estate or spouse.

The responsibility exists even if the employee, immediately before death, was employed by the agency in a position that did not accrue vacation leave or sick leave, or both.

The payment must be charged to the appropriation year in which the state employee’s death occurred.

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Entitlement to Payment

If the deceased employee completed at least six months of continuous state employment, the estate or spouse of a deceased state employee is entitled to:

  • The balance of the deceased employee’s accumulated vacation leave, and
  • One-half of the employee’s sick leave (up to 336 hours).

The estate or spouse of the deceased state employee who completed less than six months of continuous service may be paid other types of compensation, but will not be paid for any accumulated leave.

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Special Tax Considerations

The sick leave portion of a lump sum payment of accrued vacation and sick leave upon the death of a state employee is not subject to:

  • Federal income tax (FIT) withholding, or
  • Withholding under the Federal Insurance Contributions Act (FICA).

The vacation leave portion of a lump sum payment of accrued vacation leave and sick leave upon the death of a state employee is not subject to FIT withholding, but is subject to withholding under FICA if paid in the same year as death.

If the payment occurs after the calendar year of the employee’s death, the lump sum payment is not subject to FIT or FICA.

Refer to Internal Revenue Service Form W-2 InstructionsPDF for tax information.

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Deductions Considerations

A lump sum payment for accrued vacation and sick leave upon death of a state employee is not subject to deductions for employee retirement contributions to the:

  • Optional Retirement Program,
  • Teacher Retirement System, or
  • Employees Retirement System.

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Examples: Computation of Hours of Leave Time

The balance of the deceased state employee’s accrued vacation time must be allocated over the workdays following the effective date and time of the employee’s death until the total accrued vacation time is completely allocated. The sick leave to be paid is then allocated over the workdays following the allocation of the vacation time.

If a deceased employee worked at least 40 hours a week, each workday will consist of eight hours.

If the employee worked less than 40 hours a week during their normally scheduled workweek, their hours are divided by five days to compute the number of hours in each workday.

Example:

State employees who were scheduled to work 40-hour workweeks have eight hours added to their leave balance for each state or national holiday occurring during their balance allocation period.

Employees that work less than a 40-hour workweek also collect holiday hours. Their state and national holiday hours are equal to the product of eight hours and the percentage of the 40 hours normally scheduled in their workweek.

Example:

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Computation of the Applicable Hourly Rate

When computing a lump sum payment to the estate of a deceased state employee, the applicable hourly rate is the employee’s rate of compensation on the date of death.

A state employee’s compensation includes:

  • Base pay, and
  • Emoluments or stipends provided as a salary supplement.

Compensation does not include:

  • Longevity Pay
  • Hazardous Duty Pay
  • Special items of compensation (such as housing, utilities, clothing, and cleaning   unless provided in lieu of base pay.)

Deceased state employees that were not hourly employees immediately before their death must have their compensation expressed as an hourly rate.

The hourly rate of compensation for a particular month is calculated by dividing the rate of compensation by the standard number of working hours in a month.

As the standard number of working hours in a month varies from month to month, this should be considered when calculating the hourly rate of compensation.

Deceased state employees who worked less than 12 months but opted to be paid over a 12-month period must have their applicable hourly rate based on the amount of compensation earned each month the employee worked.

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Example: Calculating the Lump Sum Payment

  1. Calculate vacation hours and applicable hourly rate for each month
  2. Calculate the Lump Sum Gross of vacation leave for each month
  3. Add March and April gross totals for total vacation leave
  4. Calculate Lump Sum Gross of Sick Leave
  5. Calculate the holiday hours with the April Sick Leave
  6. Calculate the Lump Sum Gross Payment

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Definitions

Administrator
If the person’s will did not name anyone to be the executor, or the person(s) named in the will refuses or cannot act, then the probate court will appoint someone to act as the administrator of the will. The administrator works with the court to see that the decedent’s financial affairs are resolved and the remainder of his or her estate is distributed according to the instructions spelled out in the will.
Applicable hourly rate
Annual rate of authorized salary divided by twelve to get the applicable monthly rate. Applicable hourly rate is calculated by dividing the applicable monthly rate by the number of standard work hours in the month (hours for Monday-through-Friday 40-hours per week).
Compensation
Includes salary, compensatory per diem, expense per diem, reimbursement for expenses, longevity pay, and fees associated with the appointed or elected office.
Continuous state employment
Non-interrupted employment with the state in which the employee receives a regular salary. An unpaid leave period that covers one or more entire calendar months does not count toward fulfilling the six month requirement.

Sources

Texas Probate Code Annotated, Section Chapter VI, Section 160(b); Administrative Rule 5.44; Texas Government Code Section 661.031–.038; IRS Publication 15 (Circular E)PDF, Employee’s Tax Guide; IRS Publication 15-APDF, Employer’s Supplemental Tax Guide.

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Susan Combs
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.state.tx.us
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