Unclaimed Property and Escheatment for Contractors
Most contractors think of an uncashed check as a small accounting nuisance — a line on the bank reconciliation that never clears, a few hundred dollars that quietly improves the cash balance the longer it sits. It is not a nuisance. It is property that belongs to someone else, and after a defined period of inactivity, the law requires the contractor to hand it over to the state. The process is called escheatment, the category is called unclaimed property, and ignoring it is one of the most common — and most expensive — compliance gaps in construction finance.
Unclaimed property law treats a stale check the same way it treats a forgotten bank account or an unredeemed gift card. The money is presumed abandoned by its rightful owner, but it never becomes the holder's to keep. Instead, the state steps in as custodian, holds the funds in perpetuity, and tries to reunite them with the owner. The contractor's job is to identify the property, attempt to contact the owner, and then report and remit anything still outstanding. None of those steps are optional, and a contractor that simply writes uncashed checks back into income is creating a liability that compounds every year it goes unaddressed.
Construction is a structurally high-risk industry for this. A general contractor cuts thousands of checks a year to subcontractors, material suppliers, equipment rental houses, and field employees — many of them small, many of them to payees whose addresses change between the day the check is issued and the day it should have been deposited. Stack multi-state operations on top of that, and a contractor can easily owe unclaimed property reports to a dozen or more jurisdictions without ever realizing it.
$0B
Unclaimed property returned to owners by U.S. states in a single recent year — a fraction of the larger pool states continue to hold (National Association of Unclaimed Property Administrators)
Unclaimed property is broader than most people assume. It is not limited to checks that bounced or were lost in the mail. Any obligation the contractor owes to an identifiable party, where the party has not claimed what it is owed within the statutory period, is potentially reportable. In a construction back office, the most common categories are predictable.
Construction AP items that typically become unclaimed property
- Uncashed vendor and supplier checks — a material invoice was paid, the supplier never deposited the check, and it ages off the reconciliation
- Uncashed subcontractor checks — progress payments or final payments to subs that, often because of a closed business or changed address, are never negotiated
- Expired or stale retainage checks — retainage released at project closeout but never cashed, frequently because the sub's accounts-receivable contact moved on between the original billing and the release
- Stale payroll checks — final paychecks to laid-off field workers, travelers, or seasonal crews who left the area and never deposited the check
- Unrefunded credit balances — a vendor was overpaid or double-paid, the credit sits on the account, and the vendor never reclaims it
- Voided-then-reissued duplicates — a replacement check clears, but the original is never formally voided and lingers as an apparent open liability
The unifying thread is that the contractor still owes the money. Writing the check did not extinguish the obligation; cashing the check would have. Until the payee is paid or the property is escheated, the liability is real — which is exactly why simply reversing a stale check into miscellaneous income is the wrong move. It removes the liability from the books without removing it in law.
A check does not become unclaimed property the moment it goes stale at the bank. It becomes reportable after the dormancy period — the span of inactivity, defined by state law, after which the property is presumed abandoned. Dormancy periods vary by state and by property type, and contractors should never assume a single number applies everywhere they operate.
For most accounts-payable property — vendor checks, subcontractor checks, refunds — the dormancy period is commonly three years, though some states use one, two, or five. Payroll is frequently treated more aggressively, with a shorter dormancy period of one year in many states, on the theory that wages are owed to individuals who should be located quickly. The clock typically starts from the check's issue date, not from when it went stale at the bank, so a check written today can become reportable property well before a contractor thinks of it as a problem.
Do not rely on the dormancy period of your headquarters state. Unclaimed property is generally reported to the state of the payee's last known address — so a Texas contractor with subs and crews working a job in Colorado may owe Colorado reports under Colorado dormancy rules. Multi-state contractors are multi-state filers whether they have set up to be or not.
The reporting destination follows long-settled rules. The primary rule is that unclaimed property is reported to the state of the payee's last known address as shown in the holder's records. If the contractor has no address for the payee, or the address is in a state with no unclaimed property law, the property falls to the contractor's state of incorporation under the secondary rule. For a contractor with subcontractors and material suppliers spread across several states, this means the annual obligation is genuinely multi-jurisdictional — and each state has its own forms, its own filing deadlines, and its own dormancy schedule.
Escheatment is an annual compliance event, not a one-time cleanup. Every year, a contractor should run the same cycle: identify property that has reached its dormancy period, perform required owner outreach, and then file reports and remit funds to each applicable state by that state's deadline. Most states use a fall reporting deadline for general business property and a spring deadline for certain other holders, but the specific dates differ, so the calendar has to be built state by state.
The recurring steps in an annual escheatment cycle
- Identify reportable items — pull all outstanding checks and credit balances that have reached the relevant dormancy period as of the state's record date
- Run due-diligence outreach — send the required letters to payees before the property is reported (covered below)
- Net out responses — remove items that were claimed, reissued, or resolved during the due-diligence window
- Prepare state reports — build each state's filing in its required format, classified by property type code
- Remit the funds — transfer the still-unclaimed money to each state along with its report by the applicable deadline
- Retain documentation — keep the reports, remittance records, and due-diligence evidence; the period property is presumed abandoned does not end the contractor's recordkeeping obligation
Before a contractor escheats anything, most states require a genuine attempt to return the property to its owner. This is the due-diligence requirement, and it is satisfied by sending written notice — a due-diligence letter — to the payee at the last known address, typically within a defined window before the reporting deadline. Many states require these letters for property above a dollar threshold (commonly $50), and a growing number require electronic notice as well when the holder has an email address on file.
The letter is not a formality to be skipped. It tells the payee that the contractor is holding funds, explains how to claim them, and gives a deadline. A meaningful share of stale checks resolve at this stage — a sub realizes a retainage check was never deposited, a former employee responds, a supplier provides updated remittance instructions. Property that is claimed in response to a due-diligence letter is reissued to the owner and never escheated at all. Property that goes unanswered moves forward to the state report. Skipping due diligence does not just risk an unhappy payee; it is itself a compliance failure that auditors look for.
States have a strong financial incentive to enforce unclaimed property law, and they know which industries tend to under-report. Construction sits near the top of that list for reasons baked into how the work is done.
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What makes contractors a frequent escheatment audit target
- High check volume in small amounts — thousands of sub and supplier payments a year, many small enough that no one chases an uncashed one
- Address churn — subcontractors dissolve, suppliers relocate, and field crews move between jobs and states, so last-known addresses go stale fast
- Multi-state work — operating across state lines creates filing obligations in every payee state, and few contractors file in all of them
- Project-based recordkeeping — a job closes, its files are archived, and the stale retainage check from that job is never revisited
- A tradition of writing stale checks back to income — a practice that flags immediately in an audit as un-escheated liability
Compounding the exposure: many states outsource unclaimed property audits to third-party firms paid on a contingency-fee basis — they keep a percentage of what they find. These firms are aggressive, they audit on behalf of multiple states at once, and the lookback period can stretch back many years, often supplemented by estimation when records are incomplete. A contractor with a habit of reversing stale checks into income can face an assessment covering a decade or more of un-escheated property, plus interest and penalties — far more than the underlying checks were worth.
If your books still hold stale checks you have never escheated, consider whether a state voluntary disclosure agreement is the right path before an auditor finds you. Voluntary disclosure programs generally shorten the lookback period and waive penalties in exchange for coming forward — leverage that disappears the moment an audit notice arrives.
Unclaimed property exposure is almost entirely preventable. It accumulates because outstanding checks are treated as a bank-reconciliation footnote rather than a tracked liability with a legal lifecycle. Turning that around takes a small number of disciplined practices.
The foundation is knowing what is outstanding and how old it is. The outstanding-check list should be reconciled every month and aged — 30, 60, 90, 180 days, and beyond — so that no check quietly drifts toward a dormancy period unnoticed. A check still uncashed at 90 or 120 days is a signal to act, long before escheatment is in play.
Most stale checks resolve with a phone call or email well before any state deadline. When a check ages past a set threshold, AP should contact the payee, confirm the address, and reissue or void as appropriate. Early outreach is simply customer service that also happens to dissolve a future liability — and it is far cheaper than a formal due-diligence letter or an escheatment filing.
The contractor should have a documented policy covering how outstanding checks are monitored, at what age payee outreach happens, how voids and reissues are controlled, when due-diligence letters go out, and how the annual state filings are prepared. A written policy consistently applied is also the best defense in an audit — it demonstrates the contractor takes the obligation seriously and is not selectively reversing stale checks into income.
Because deadlines and dormancy periods vary, the contractor needs a calendar of every state where it has filing obligations, with each state's record date, due-diligence window, and reporting deadline. For contractors working in many states, this is where dedicated unclaimed property software or an outside specialist earns its cost — the alternative is missing filings in states the contractor did not realize it owed.
Uncashed subcontractor checks, expired retainage checks, and stale payroll checks are not free money and they are not an accounting rounding error — they are unclaimed property the contractor is legally required to report and remit to the state. Construction's high volume of small payments, constant address churn, and multi-state footprint make contractors a favorite target of contingency-fee escheatment auditors, and the cost of getting caught — multi-year lookbacks, interest, and penalties — dwarfs the value of the checks themselves. The fix is unglamorous and entirely within reach: reconcile and age outstanding checks every month, contact payees early, send the required due-diligence letters, file with each applicable state on time, and write all of it into a policy the contractor actually follows. Treat outstanding checks as the tracked liability they are, and escheatment becomes a routine annual filing rather than an audit waiting to happen.
Written by
Jordan Patel
Compliance & Legal
Former corporate counsel specializing in construction contracts and tax compliance. Writes about the documentation layer — COIs, W-8/W-9, certified payroll, notice-to-owner deadlines — and the legal backbone behind audit-ready AP.
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