Somewhere in your books there is money that does not belong to you. It might be a payroll check a former employee never cashed, a vendor refund that bounced back, or a patient credit balance from an overpaid copay. Most owners treat these items as clutter and eventually write them off to miscellaneous income. Every state treats them as unclaimed property, and the business holding them is legally required to report and turn them over.
Unclaimed property, also called escheat, is one of the least understood compliance obligations in small business finance. It is not a tax, so your tax preparer may never raise it. But states enforce it aggressively, often through contingent-fee auditors who look back ten years or more. With several state reporting deadlines arriving this fall, here is what every business and medical practice should know.
Key Takeaways
- Uncashed checks, customer and patient credit balances, and unused refunds generally become reportable after a dormancy period of one to five years.
- You cannot keep these funds by writing them off to income. Doing so is one of the most common findings in a state audit.
- Most states require due diligence letters to owners before you file, and many require annual reports even when you have nothing to report.
- Voluntary disclosure programs can often reduce or waive interest and penalties if you come forward before an audit notice arrives.
What Counts as Unclaimed Property?
Unclaimed property is any financial asset you owe to someone else when there has been no owner contact for a set period. For most small businesses and practices, the common categories are:
- Uncashed payroll checks, including final paychecks and bonus checks.
- Outstanding vendor checks that were never deposited.
- Customer credit balances from overpayments, duplicate payments, or unapplied deposits.
- Patient credit balances in medical, dental, and therapy practices.
- Unissued refunds and rebates, and in some states, gift certificates.
The rules vary by state, and some states exempt certain business-to-business credits or gift cards. That is why a one-size-fits-all approach rarely works for businesses with customers, employees, or patients in more than one state.
Dormancy Periods and Which State Gets the Money
An item becomes reportable once it passes its dormancy period without owner activity. Payroll is usually the shortest at one year in most states, while vendor checks and customer credits commonly run three to five years.
| Property Type | Typical Dormancy Period | Common Source |
|---|---|---|
| Wages and payroll | 1 year | Final paychecks, terminated employees |
| Vendor and accounts payable checks | 3 to 5 years | Voided or stale checks never reissued |
| Customer credit balances | 3 to 5 years | Overpayments and duplicate payments |
| Patient credit balances | 1 to 5 years | Copay and deductible overpayments |
The U.S. Supreme Court set the priority rules decades ago. Property goes first to the state of the owner’s last known address. If you have no address on file, it goes to your state of incorporation or formation. That second rule surprises many owners: a Florida practice organized as a Delaware LLC can owe Delaware for every item with a missing address.
Why Writing It Off Is a Costly Mistake
The most common shortcut is to clear old outstanding checks and credit balances by booking them to other income. It cleans up the bank reconciliation, but it does not extinguish the obligation. State auditors specifically look for these write-offs, and if your records for older years are incomplete, many states will estimate your liability by applying error rates from recent years to the years you cannot document.
An unclaimed property audit can reach back ten years plus the dormancy period, so a problem that started in 2014 can still show up on a 2026 audit assessment.
On top of the property itself, states may charge interest and penalties for late or missing reports. Third-party audit firms are frequently paid a percentage of what they find, which gives them every incentive to dig deep.
Special Considerations for Medical Practices
Healthcare practices carry more unclaimed property risk than most businesses because credit balances are created constantly as insurance payments, patient payments, and adjustments cross paths. Two distinctions matter:
Patient Overpayments
When a patient overpays and you cannot locate them to issue a refund, that credit balance is generally reportable unclaimed property after the dormancy period. Clean patient demographics and prompt refund processing are your best defense.
Payer Overpayments
Overpayments from insurers are a different issue. Medicare and Medicaid overpayments must generally be reported and returned to the program within 60 days of being identified, and commercial payer contracts often set their own refund terms. These are not something to hold until they go dormant. A strong revenue cycle management process should flag and resolve both types every month.
How to Get Compliant: A Five-Step Process
- Run an aging review. Pull outstanding checks from every bank reconciliation and credit balances from your accounts receivable and practice management system. Note the last owner contact date for each item.
- Try to reunite owners first. Reissuing a check or applying a credit to an active account resolves the item with no state involvement.
- Send due diligence letters. Most states require written notice to owners of items above a set threshold, typically 60 to 120 days before the report is due.
- File and remit by state. Deadlines differ. Delaware is March 1, New York is March 10, Florida is May 1, Texas is July 1, and California and several other states use November 1. Some states require a report even if you have nothing to remit.
- Consider voluntary disclosure for past years. If you have never filed, many states offer voluntary disclosure agreements that limit the lookback period and reduce or waive interest and penalties. These programs are generally only available before you receive an audit notice.
Build It Into Your Monthly Close
The easiest way to stay compliant is to prevent stale items from piling up. Add a step to your month-end close to review checks older than 90 days, follow up with payees, and track credit balances with dates of last contact. Strong accounts payable controls, including positive pay and electronic payments, reduce the number of checks that go uncashed in the first place.
The Bottom Line
Unclaimed property is easy to overlook until a state audit letter arrives. A simple annual review, consistent due diligence, and timely reporting turn a hidden liability into a routine compliance task.
Our accounts payable and receivable team can clean up stale checks and credit balances, our financial reporting and compliance specialists can prepare and file state reports, and our medical practice finance group can tighten patient and payer refund workflows. Schedule a free consultation and we will help you find and resolve unclaimed property before the state finds it for you.
