The final salary payment should be reported on the former employee’s W-2, and the interest paid due to late payment of salary per your state's law would be reported on form 1099-INT, provided that the interest paid is above the reporting threshold of $600 (see instructions for form 1099-INT, page 3 under “Box 1. Interest Income”). We confirmed this with IRS information reporting specialist Ms. Pasiuk, ID# 1000207844.
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