Third Party Sick Pay: What You Need to Know in 2021

Learning Objectives

• To review different types of ways companies can choose to handle third party sick pay with their providers. 
• To discuss State and City review of current legislation of sick accruals that must be provided to employees 
• To determine W-2 reporting requirements for third party sick pay 
• To determine what tax should be withheld and reported and by whom 
• To describe how to handle waiting periods before disability starts

Course Description

Legislation is changing rapidly in regards to employers being required to provide employees with accrued sick time. In 2020 with the COVID-19 pandemic states and federal have updated legislation on paying sick pay. It began with city legislation and has now moved to states such as California that employers must comply with.  Employees who lose wages as a result of illness or a nonwork-related accident are eligible to receive disability payments, also known as third-party sick pay.

Most employers provide some degree of wage protection for employees who miss work Due to personal illness or injury. Sick pay paid directly by an employer generally is treated as ordinary wages, subject to withholding for federal employment taxes. FICA taxes, however, apply to such payments only for the first six months.

If sick pay is provided through a third party, such as an insurance company, income tax withholding does not apply unless requested by the employee. For purposes of FICA, the third-party payer of sick pay is considered the employer and is responsible for withholding, paying, depositing, and reporting taxes on sick payments unless this responsibility is transferred to the actual employer.

Any portion of sick pay paid by a third party that is attributable to the employee’s own premium contribution is not wages and is not subject to withholding. However, when premium contributions are made with pre-tax dollars under the employer’s cafeteria plan and deferred from taxation, then any sick pay paid by a third party to the employee is subject to FICA and FIT withholding.

Major Topics covered in this online Tax Update CPE/CE webinar:

• Up to date legislation and pending legislation in regards to mandated sick pay requirements on employers.
• Who is responsible for tax withholding and reporting for third-party sick pay?
• Details of states with disability funds 
• How the tax is handled and claims are worked in regards to your third-party provider?
• 2020 & 2021 federal requirements due to the Emergency paid sick leave act and the families’ first coronavirus response act.

Overview

• Paid sick leave

  6 mins
• Paid sick leave-city requirements

  36 mins
• Paid sick/Family leave - COVID19

  37 mins
• Short term disability or third party sick pay

  41 mins
• Long term disability

  45 mins