Updated 12/04/2012 12:03 PM |
ID# 1542
I have employees who receive sick pay from a third party who do not contribute to the plan. How are those payments reported?
The third party must report the sick pay on a Form W-2 for an employee's paid sick pay if the third party either:
- Is paid an insurance premium and is not reimbursed on a cost-plus-fee basis; or
- Is designated as the employer for sick payments based upon an agreement; or
- Fails to do three things: 1) withhold the employees' share of Social Security and Medicare taxes AND deposit them for IRS when due; 2) notify the employer of the sick payments made and taxes withheld timely so the employer can file proper returns (i.e. in time to file Form 941 tax returns quarterly with IRS); and 3) provide the employer with information about sick payments made by January 15 of the following year to allow the employer to prepare employee W-2s timely showing sick pay amounts.
Sick pay is shown on W-2s as follows:
- Box 1 includes the amount of sick pay paid in the year.
- Box 2 includes the amount of any income tax withheld from the sick pay by the third party payer.
- Box 3 includes the amount of sick pay for the year that is subject to Social Security or Medicare tax (generally, payments made for the first six-month period after work stopped minus the amounts based upon the employee's own contributions and any amounts paid as workmen's compensation).
- Box 4 includes the employee's share of Social Security tax withheld by the third party payer.
More information on sick pay can be found in IRS Publication 15-A .
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