Third-party sick pay
Third-party sick pay is wage replacement paid to an employee by an insurer or other third party rather than directly by you.
Sick pay you pay directly is wages, and each tax applies its own rules to it. Third-party sick pay does not automatically follow that path. Taxability turns on who funded the premiums, and whether that money was pre-tax or after-tax. A benefit funded entirely by employee after-tax premiums is generally not taxable wages. Federal rules limit how long the payments stay subject to Social Security and Medicare, measured from the last calendar month worked.
Who reports third-party sick pay at year end?
Reporting follows the agent question. Form 8922 reconciles the split when the party filing the Forms W-2Form W-2. Form W-2 is the annual wage and tax statement you give employees and file with the Social Security Administration, reporting wages paid and taxes withheld.Click to open the term is not the party liable for the tax. Box 13 of Form W-2 carries a third-party sick pay checkbox so the source of the payment stays visible. Collecting third-party sick-pay figures is a standard year-end task, alongside taxable fringe benefitsTaxable fringe benefits. Taxable fringe benefits are noncash or employer-provided items that count as wages and must be added to taxable compensation for one or more wage bases.Click to open the term. Put it on the calendar before the last payroll of the year, not after it.
| THIRD PARTY’S ROLE | EMPLOYMENT TAXES | FORM W-2 |
|---|---|---|
| Acts as your agent | You, generally; the agent deposits and reports under the arrangement you and the agent set | You, generally |
| Not your agent | The insurer: both employee and employer parts of Social Security and Medicare, plus FUTA | The insurer |
| Not your agent, but it withholds and timely deposits the employee part and gives you timely notice | Employer part and FUTA can move to you | Can move to you |
- Publication 15-A (2026), Employer’s Supplemental Tax Guide
- About Form 8922, Third-Party Sick Pay Recap
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.