by Alice Gilman
When an employee receives sick pay — including long‑term or short‑term disability pay — from a third party such as an insurer or insurance company, the employer and the third‑party payer may both have obligations to withhold, deposit and report Social Security and Medicare (FICA) taxes on the amounts paid.
Federal income tax withholding is mandatory or voluntary, depending on the payer. Although sick pay is taxable to the employee, and the employer must pay its matching share of FICA taxes, under special rules the employer and the third party may transfer liability between themselves for withholding, depositing and reporting the taxes attributable to the sick pay.
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- Step 1: Identify Whether Sick Pay Is Paid Under a Plan
- Step 2: Identify the Entity That Pays the Sick Pay
- Step 3: Apportion the Tax Responsibilities
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How to Report Third-Party Sick Pay to the IRS
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About the author
Alice Gilman
Alice Gilman, an employment tax compliance expert, has created two best-selling payroll compliance publications – Payroll Legal Alert, and The Payroll Compliance Handbook, currently published by Business Management Daily.
She was a contributing editor to Alexander Hamilton Institute’s Benefits Alert, Personnel Legal Alert, and Manager’s Legal Bulletin newsletters; the Complete Compliance Guide to Federal and State Employment Laws; the Complete COBRA Compliance Kit; the Complete FLSA Compliance Kit; and the Complete HIPAA Compliance Kit.
At Aspen Publishers, Ms. Gilman was a contributing editor to the Payroll Manager’s Letter, the American Payroll Association’s Basic Guide to Payroll, How to Slash Payroll Costs, and the Fingertip Guide to Payroll Practice.
Alice is a graduate of the State University of New York at Albany and received her law degree from the University of Bridgeport.
She is admitted to the New York State Bar and is a member of the American Payroll Association.