J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

2.2 Constructive Receipt of Year-End Paychecks

As an employee, you use the cash-basis method of accounting. This means that you report all income items in the year they are actually received and deduct expenses in the year you pay them.

You are also subject to the “constructive receipt rule,” which requires you to report income not actually received but which has been credited to your account, subject to your control, or put aside for you. Thus, if you received a paycheck at the end of 2012, you must report the pay on your 2012 return, even though you do not cash or deposit it to your account until 2012. This is true even if you receive the check after banking hours on the last business day of the year and cannot cash or deposit it until the next year. The Tax Court has also ruled that receipt by an agent (e.g., an attorney) is constructive receipt by the principal.

If your employer does not have funds in the bank and asks you to hold the check before depositing it, you do not have taxable income until the check is cashed. If services rendered in 2012 are paid for by check dated for 2013, the pay is taxable in 2013.

The IRS has ruled that an employee who is not at home on December 31 to take delivery of a check sent by certified mail must still report the check in that year. However, where an employee was not at home to take certified mail delivery of a year-end check that she did not expect to receive until the next year, the Tax Court held that the funds were taxable when received ...