Constructive Receipt: Income You Haven't Cashed Yet
Why a cash-method business can owe tax on money it has not deposited, and the line between legitimate deferral and turning payment away.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Constructive receipt is the rule that a cash-method taxpayer has income when it is credited to their account, set apart for them, or otherwise made available without substantial restriction — even if they have not actually taken it. You cannot postpone tax by leaving a check undeposited or declining to collect money that is yours to take.
On this page
When does constructive receipt apply?
| Situation | Taxable this year? |
|---|---|
| Check received December 30, deposited January 3 | Yes — received in December |
| Check available for pickup in December, owner chooses not to collect | Generally yes |
| Interest credited to your account in December | Yes |
| Payment processor holds funds you can withdraw on demand | Yes |
| Customer mails payment in January for a December invoice | No — not available until received |
| Payment subject to a real condition (approval, completion) | No, until the condition is met |
| Amounts deferred under a nonqualified deferred compensation plan | No, if the plan meets Section 409A's rules |
What can a business legitimately do at year end?
A cash-method business can time when it bills and when it agrees to be paid, before the money is earned and available. Sending December invoices in January, or setting payment terms that fall after year end, is generally fine. What it cannot do is refuse or delay accepting money that is already due and offered.
How does this differ from actual receipt?
Actual receipt is getting cash or property in hand. Constructive receipt treats as received what you could have had. Together they define when cash-method income is reported. Accrual-method businesses report income when it is earned, so the doctrine matters mainly for cash-method businesses and individuals.
Where do owners trip over it?
- Year-end bonuses the company credited or made available in December but paid in January.
- Retainers and deposits received in advance — generally income when received under the cash method.
- Payment platforms holding balances the owner could transfer out.
- Deferral arrangements set up after the pay was already earned and available. Under Section 409A, elections to defer nonqualified compensation must generally be made by the end of the year before the year in which the services are performed.
Frequently asked questions
Does a postdated check count as received?
No. A postdated check is not available until its date.
What about a check that bounces?
If it is not honored, there is no receipt. If it clears after being redeposited in the new year, the timing depends on when funds were made available.
Can I ask a client to pay me next year?
Before the payment is due and offered, yes — that is agreeing on terms. Once a client offers payment that is due, declining it to defer tax is constructive receipt.
Does it apply to corporations?
It applies to any cash-method taxpayer — individuals, partnerships, S corporations, and C corporations that qualify for the cash method under the gross receipts test ($31 million for 2025, $32 million for 2026).
Official sources
The regulation provides: “However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions.” — U.S. Department of the Treasury, 26 CFR 1.451-2 -- Constructive receipt of income., https://www.ecfr.gov/current/title-26/section-1.451-2
The IRS explains: “Income is constructively received when an amount is credited to your account or made available to you without restriction. You do not need to have possession of it.” — Internal Revenue Service, Publication 538 (01/2022), Accounting Periods and Methods, https://www.irs.gov/publications/p538
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk plans year-end billing and payment timing that holds up. See pricing or book a free fit call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
Book a free fit call