Third Party Sick Pay Reporting FAQs
Like many reporting requirements, Third Party Sick Pay Reporting can be confusing. As a specialist in benefits administration, we want to help you better understand the process.
Because we provide disability insurance and pay disability benefits directly to employees, American Fidelity is considered a third-party payer of sick pay. Below are some FAQs we’ve received:
What tax implications may apply?
Disability benefits are taxable to the employee to the extent that the disability premiums are paid by the employer and not attributed as wages. The IRS considers premiums paid with an employee’s before-tax dollars (such as through a Section 125 Plan) to be employer-paid premiums as well.
Taxable disability benefits are subject to the Federal Insurance Contributions Act (FICA), and, if applicable, state income tax. Note that income tax withholding isn’t required unless the employee requests it.
American Fidelity will withhold the employee share of FICA from taxable benefits, and the employer will remit their share.
Who is responsible for filing Form W-2?
Unless previously negotiated, the employer is responsible for filing their employees’ W-2 Forms for the first six months of disability benefits. For more, see the question: Are long-term disability benefits reported differently?
The rules can be found in the Third Party Sick Pay Reporting section of Internal Revenue Service (IRS) Publication 15A, as well as in the Treasury Regulations. Reporting of taxable disability benefits on a Form W-2 to the disabled insured is required by these Third Party Sick Pay Reporting rules, as well as the related payroll reports.
How will American Fidelity provide me with the information needed to report disability benefits?
We will provide statements via mail or fax on a monthly and quarterly basis. The statements will include detailed instructions for third party sick pay reporting on your employees’ W-2 Forms.
How else may I access my reports?
Your reports are available online each month. When you log in to your online account, you’ll be able to review, download, and print reports at any time. Reports are provided monthly, and a year-to-date report is provided quarterly.
What is Form 8922?
Form 8922 is used to assist the IRS with reconciling payroll tax remitted by an entity when the tax remitting entity is not the same entity that files the Form W-2 for such employee. When it comes to third party sick pay, it’s unlikely that the employer would be required to file the Form 8922.
Are long-term disability benefits reported differently?
Yes. American Fidelity will assume tax reporting for the first full calendar year following 6 months of long-term disability.
Where is taxable income reported?
Taxable income shows in Box 1 of the Form W-2, with wages and tips.
Where is non-taxable income reported?
Non-Taxable income, if reported, will show in Box 12 of the Form W-2 with an assigned code next to it. Please be advised that changes to the form and codes may be present in future years.
Are there other related forms and tax documents?
Form 1099-MISC—You may see this form issued to employees for taxable cancer benefits in cases where the premium for the policy is paid by or deemed paid by the employer. This form is also used to report payments in amounts totaling $600 or more in a taxable year made to medical providers (doctors, hospitals, clinics, etc.) for medical record fees, as well as copy services to funeral homes and attorneys.
Form 1099-RI—Generally, you will see this form used for reporting retirement-related payments, such as annuities.
Form 1099-INT—Taxable interest of many types are reportable on this form. You may see this form issued in relation to interest paid with respect to death benefits paid from life insurance policies or interest paid/accumulated on Guaranteed Additional Benefits that are held on deposit with American Fidelity.
If you have further questions, please contact us.