Third Party Sick Pay

[Christian]

A client was sick for an extended period and has received a W-2 indicating payment through an insurance carrier noting third party sick leave in the applicable box. I checked to see if this pay would be federally or state deductible or exempt but came up negative. Curiously the amount shown as wages in Box 1 are not the amounts shown in the Social Security and Medicare tax boxes 3 and 5. Somewhere along the line I read that sick pay is exempt from these for a time and thereafter subject to them. Would this account for the difference ? I was looking to see if any of the reported wages would be exempt from tax but can find none. 

[Lee B]

"Taxing of Third Party Sick Pay Payments:

If the employer pays the entire insurance premium, then the sick pay payments received are 100% taxable to the employee.

If the employer pays a portion of the premium and the employee pays the balance with after tax dollars, then the sick pay payments are taxable in the same proportion as the percentage of the premium paid by the employer.

If the employer pays nothing and the employee pays the entire premium with pre-tax dollars, then the sick pay payments received are 100% taxable to the employee.

If the employer pays nothing and the employee pays the entire premium with after tax dollars, then the sick pay payments received are not taxable to the employee."

[Christian]

That is also something I too have read. There is nothing on the form to indicate that any part of the benefits are nontaxable. I will assume that the premiums were fully paid by the bank she worked for. Well it was worth a try to help her. 

[Lee B]

Ask to see her final 2021 & 2022 pay stubs, it should tell you who paid for the third party sick leave benefit.

[Medlin Software, Dennis]

Often times, the TPSP provider does not withhold, and neither does the employer. Thus two W2’s are normal, and under withholding is as well.