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Reporting Sick Pay Paid by Third Parties

The IRS has issued a notice describing the rules for filing Form 8922, Third-Party Sick Pay Recap, an annual form filed with the IRS that replaces third-party sick pay recaps that were filed with the SSA.  Form 8922 must be used by third parties and employers to report total payments of certain sick pay paid by third parties on or after January 1, 2014.  In situations in which the liability for the Federal Insurance Contributions Act (FICA) taxes on the sick pay is split between the employer and the third party under applicable regulations, Form 8922 must be used for filing “third-party sick pay recaps” to reconcile the reporting of sick pay paid by a third party on behalf of employers to employees.

The modified procedure does not affect:

  • Furnishing statements of the third party sick pay to individual employees on Form W-2, Wage and Tax Statement
  • Filing with SSA copies of the Forms W-2 together with Form W-3, Transmittal of Wage and Tax Statements, that are not third-party sick pay recaps
  • Reporting such payments to the IRS on Form 941, Employer’s QUARTERLY Federal Tax Return (or on Form 944, Employer’s ANNUAL Federal Tax Return, if applicable)
  • Liability for FICA tax, income tax withholding, Federal Unemployment Tax Act (FUTA) tax (collectively, “employment taxes”), or other taxes

Third-party sick pay is sick pay that is paid to an employee by some person (the third party) other than the employer for whom services are normally performed.  The requirements for federal income tax withholding on sick pay and the applicable method for determining the amount of withholding depend on whether the sick pay is paid by the employer of the employee, by an agent of the employer, or by a third party that is not the agent of the employer.  More information can be found in IRS Notice 2015-6 at http://www.irs.gov/pub/irs-drop/n-15-06.pdf.