Building Your Business Business Taxes How Do I Return Unclaimed Paychecks to the State? By Jean Murray Updated on November 18, 2019 In This Article View All In This Article Unclaimed Paychecks and Your State Rules for Returning Paychecks How toI Notify the Employee How to Submit Un-Cashed Paycheck Establish a Procedure Photo: C Squared Studios / Getty Images You have probably heard the phrase, "Ignorance of the law is no excuse." Well, this is one of those cases that illustrates the rule: you cannot keep un-cashed employee paychecks; you must turn them over to your state. Unclaimed paychecks are a special kind of unclaimed property. If you are sitting on unclaimed paychecks, you (the employer) are legally bound by state law to return any un-cashed paychecks to the state where the person last worked. You can be fined or penalized if you don't return the check, even if the person can't be found. Why Must Unclaimed Paychecks Be Turned Over to the State? The principle behind this law is called "escheat" (it's pronounced like it looks, in two syllables: es-cheat.) Escheat means "surrender," and it is based on a common law doctrine that requires unclaimed property be returned (surrendered) to the state, not kept by the person who has it. What Are the Rules for Returning Employee Paychecks? Escheat laws vary by state, but most have a requirement that the company issuing the paycheck must make an effort to find the ex-employee and turn over the paycheck(s) amount within a certain amount of time (a one-year limit from the time the paycheck was issued is common). How Do I Notify the Ex-Employee? First, send a certified letter to the person's last known address (that's why you keep good payroll records, right?). The time between notification and filing varies by state, but it's usually no longer than 180 days (approximately 6 months). That is, you must notify the person then wait no longer than the specified time before turning over the paycheck to the state. Sending a certified letter means that you have a record if the letter is undeliverable; this will help you show the state you did your due diligence in trying to find the ex-employee. How Do I Submit Un-Cashed Paychecks? Each state has a different requirement. In Iowa, for example, you must try to locate ex-employees from July through September and send in your report no later than November 1. To Find the Escheat Laws in Your State... Begin by doing a search on "escheat" and your state name. Or you can check the website of the National Association of Unclaimed Property Administrators (NAUPA); they have a web page showing each state's unclaimed property section. Establish a Procedure for Dealing with Unclaimed Paychecks Set a "to do" note on your payroll calendar for the end of each year and run a report that shows the information for each paycheck. Tag the paychecks that have not been cashed. Then, send out the certified letters. Finally, follow your state's requirements for returning unclaimed paychecks for those ex-employees who haven't cashed checks. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Legal Information Institute. "U.S. Code § 2503. State entitlement to escheat or custody." Accessed Nov. 18, 2019.