Find answers to frequently asked questions about third-party sick pay.
IRS Publication 15a states: “Sick pay generally means any amount paid under a plan because of an employee's temporary absence from work due to injury, sickness, or disability. It may be paid by either the employer or a third party, such as an insurance company. Sick pay includes both short- and long-term benefits. It is often expressed as a percentage of the employee's regular wages.”
In this article we answer frequently asked questions about third-party sick pay.
What is not considered third-party sick pay?
- Disability retirement payments
- Workers’ Compensation
- Payments in the nature of workers’ compensation
- Medical expense payments
- Payments unrelated to absence from work
For detailed information about each of these situations, see IRS Publication 15a.
Are there different types of third-party sick pay wages?
Yes, there are different types of third-party sick pay wages. Here are some of them.
- Short Term Disability is provided to employees during their first six months of disability. Short term disability is subject to federal withholding, social security, Medicare, and federal unemployment. State unemployment and state withholding taxability vary by state.
- Long Term Disability is provided to employees after six months of disability. Long term disability is subject to federal withholding. It is exempt from all other federal taxes including federal unemployment. State unemployment and state withholding taxability vary by state.
- Non-taxable Disability benefits are not subject to any federal or state taxes. Non-taxable Third Party Sick Pay wages can be paid during the first six months of disability, or after. Whether benefits are taxable or non-taxable is determined by the contract that you have with the insurance company.
- FUTA/SUTA only disability wages have already had the employee and employer portions of social security and Medicare matched by the insurance provider. The insurance provider will also prepare the W-2 for the employee. The FUTA and SUTA reporting becomes the responsibility of the employer. And Intuit will report on your behalf.
Why can't I enter third-party sick pay wages in Online Payroll?
System limitations prevent third-party sick pay from being processed correctly with your normal payroll.
How do I provide my third-party information to Intuit?
The actual statement from the insurance company is recommended. Contact Payroll Support to upload or fax the document. Once your information is received by Intuit, you will be contacted by email (within three business days) stating the time frame for completion of your request.
Why can’t I e-file my 941 form?
System limitations prevent the third party sick pay information from flowing onto the 941 correctly. Instructions for preparing your 941 form manually.
What if third-party sick pay is subject to state income tax and state unemployment tax?
Verify if the State Withholding form and Unemployment form for the affected quarter are correct. If not correct, prepare and file your own state forms. Do not use Intuit's form. File an amended return if necessary.
