Third-Party Sick Pay Employee Taxes

Hello, there. tmarie2. Can you please share what payroll subscription you are using. Doing so will allow us to provide you with a more targeted response. Let me assist you in accurately recording your employee's third-party sick pay in QuickBooks Desktop.

If you are using QuickBooks Desktop Payroll Enhanced you need to report taxable third-party sick pay on your employee W-2, 941, and 940 that was withheld by the third party. Here's how:

1. Go to Employees, then Payroll Taxes and Liabilities.
2. Select Adjust Payroll Liabilities.
3. Select Company Adjustment.
4. Under the Item Name column, select Social Security Employee and Medicare Employee and enter a negative amount of the tax withheld by the third party.
5. Select Accounts Affected.
6. Select Affect liability and expense accounts.
7. Then, hit OK.

Then, override line 8 with a negative amount for Social Security Employee and Medicare Employee withheld on the sick pay by the third party. See Section 6 of Publication 15A for details on tax adjustments on third-party sick pay.

But if you are using QuickBooks Desktop Payroll Assisted, then you need to verify the following info on the third-party report:

• Employee's name
• Employee's Social Security Number
• Sick pay paid to the employee
• Federal income tax withheld
• Employee Social Security tax withheld
• Employee Medicare tax withheld
• State tax withheld
• Federal Employer Identification Number (EIN) number

Then, email the third-party report to Intuit at RNAmendment_Team@intuit.com.

If any of the info is missing from the third-party report or Explanation of Benefits (EOB), contact the third party to obtain it.

Moreover, you can check if the liabilities are updated by running these reports:

• Payroll summary report
• Payroll liability balances report

By carefully following these steps, you can accurately correct your payroll tax liabilities and ensure compliance. If you have questions or need more assistance, feel free to reply. I am dedicated to helping you efficiently and accurately navigate this process.

Thank you! Yes, I am using QuickBooks Desktop Payroll Enhanced.

So I just select "Company Adjustment"? So, does this process keep the Employee portion of SS & Medicare from coming out of the Third-Party Sick Pay Wages payroll item when posting? Should the SS & Medicare taxes that were deducted from the employee's claim check (issued by the third-party) reflect on the employee's W-2? I know the sick pay wages do per the payroll item set up, but wondering about the employee taxes.

Thank You!

Did this get resolved?  How are you able to have the employee portion of FICA paid by a third party for sick pay not deducted from the paycheck but included in their W-2?

Hello, csc21.

You can track the payment of your employees' portion of FICA taxes handled by a third party, with the process depending on the type of arrangement and the reporting method used. 

Additionally, you need to set up an expense account to monitor your employees' third-party sick pay, create an addition payroll item specifically for tax tracking purposes related to third-party sick pay, and establish a deduction payroll item to account for the third-party sick pay that the employee has already received.

If third-party withholds taxes, and you file the W-2, you need to:

1. Track the third-party sick pay on a regular paycheck or create a third-party sick pay paycheck-only.
2. Create company liability adjustment for Social Security Employee and Medicare Employee.
   1. Go to Employees, then Payroll Taxes and Liabilities. 
   2. Select Adjust Payroll Liabilities.
   3. In the Date and Effective Date fields, enter the date you want the adjustment to affect your liability balance. 
   4. In the Adjustment is for: section, select Company Adjustment.
   5. Under the Item Name column, select Social Security Employee and Medicare employee and enter a negative amount of the tax withheld by the third-party.
   6. Select Accounts Affected.
   7. Select Affect liability and expense accounts.
   8. Select OK to close the Affect Accounts window.
   9. When prompted for an account to associate the adjustment with, select the Asset Account associated with the employee advance payroll item.
3. Create and file your 941 form. 
4. Override line 8 with a negative amount for Social Security Employee and Medicare Employee withheld on the sick pay by the third-party. See Section 6 of Publication 15A for details on tax adjustments on third-party sick pay.
5. Create your employees W-2. Sick pay will be reported in Box 1.

If you have more questions, add the min the comments, and we'll assist you promptly.

Thank you.  If the third party also withholds Fed and State Inc. tax withholdings do I go through the same steps of creating a liability adjustment?  

I am assuming this needs to be done with each 'zero paycheck' I create?

Hello, Csc21. Yes, you can follow the same steps to create a liability adjustment if the third party withholds Federal and State Income taxes.

In QuickBooks Desktop, since you're not directly paying these taxes to the agencies, you'll need to zero out the liabilities that the program automatically calculates when creating the sick pay paycheck.

To do this, ensure you select Employee Adjustment instead of Company Adjustment in the Adjustment is for: section, as the liability adjustment pertains to the employee’s taxes withheld by the third party.

Regarding your second question, yes, the process needs to be repeated for every zero paycheck you create to ensure the Pay Liabilities window remains accurate.

I’ll ensure this conversation remains open for any future communications.

Thanks, I appreciate this!

If the third party sick payments are not subject to the State's PFML Contributions do I uncheck those in the Taxes box while setting up the "Third Party Sick Pay" payroll item?

Thanks for reaching back out, csc21! Yes, if the third-party sick payments are not subject to your state's PFML contributions, you must uncheck the relevant tax item when setting up or editing the Third Party Sick Pay payroll item in QuickBooks Desktop.

If you have any more follow-up questions, drop them below! Thank you. 

With the new Rev Ruling 2025-4, I have set up the Fringe Benefit according to the Quickbooks instructions.  My question is will QB automatically report this Employer Picked up fringe on the 2026 W-2's or will we need to manually adjust each W-2?

Hello there, csc21.

I appreciate that you’ve already gone through the process to set up the fringe benefit in QuickBooks.

Since you’ve added the benefit, QuickBooks will automatically report the fringe benefit in the correct boxes on the W-2 forms for all future paychecks.

The only time you would need to make a manual adjustment is if a paycheck was created before the fringe benefit was set up.

Feel free to drop a comment below if you have any other questions. We’re happy to help further.