What happens if I intentionally throw out a paycheck?

Question

Setting aside the fact that most rational people would never try this, I am genuinely curious what would happen if somebody did it.

Say I am a full-time, salaried employee in the US. I'm paid twice a month, have federal and state taxes withheld, and every year I get a W2. For whatever reason, I am paid with a paper check instead of direct deposit. One payday I go a little batty and intentionally feed my paycheck through a shredder without depositing it. I don't tell anybody or ask my employer to replace it. I didn't want the money, I intentionally rejected it, and now the check is gone. Now what?

1. How/when does my employer find out? Do they get a report from their bank stating that "check 1234 for $1212.12 paid to John Doe was never deposited" or does it manifest itself as an eventual accounting discrepancy that somebody has to work to hunt down?

2. Can my employer punish me for refusing the money in this way? Do they have any means to force me to take what I am "owed?"

3. When tax time comes, and I still have not accepted the money, would it be appropriate to adjust my reported income down by the refused amount?

Answer 1

How/when does my employer find out? Do they get a report from their bank stating that "check 1234 for $1212.12 paid to John Doe was never deposited" or does it manifest itself as an eventual accounting discrepancy that somebody has to work to hunt down?

The accounting department or the payroll company they use will report that the check was not deposited. The bank has no idea that a check was written, but the accounting deportment will know. The bank reports on all the checks that were cashed.

Accounting cares because the un-cashed check for $1212.12 is a liability. They have to keep enough money in the bank to pay all the liabilities. It shouldn't be hard for them to track down the discrepancy, they will know what checks are outstanding.

Can my employer punish me for refusing the money in this way? Do they have any means to force me to take what I am "owed?"

They can't punish you. But at some time in the future they will will tell their bank not to honor the check. They will assume that it was lost or misplaced, and they will issue a new one to you.

When tax time comes, and I still have not accepted the money, would it be appropriate to adjust my reported income down by the refused amount?

You can't decide not to report it. The company knows that in year X they gave you a check for the money. They are required to report it, since they also withheld money for Federal taxes, state taxes, payroll taxes, 401K, insurance. They also count your pay as a business expense.

If you try and adjust the numbers on the W-2 the IRS will note the discrepancy and want more information. Remember the IRS get a copy of every W-2.

The employer has to report it because some people who aren't organized may not have cashed a December check before the company has to generate the W-2 in late January. It would confuse everything if they could skip reporting income just because a check wasn't cashed by the time they had to generate the W-2.

Answer 2

In a nutshell, throwing your taxable income in the trash does not remove it from your taxable income; you still have to report in your tax filing, and pay taxes as needed.
Especially as you could at any time request your employer to write you a replacement check. I would expect them to start charging a fee for reprinting if you really annoy them by doing it dozens of times.

If you want to avoid taxes on it, donate it to a deductible 501(c)3 organization; then it becomes neutral to your taxes.