Hi Dawn,
Thanks for the reply. I have a special case that my STD/LTD settlement was paid 4 years after my last day of work and 3 years after the termination of the employment. According to IRS publication 15-A (2024), Employer's Supplemental Tax Guide, section "Social Security, Medicare, and FUTA Taxes on Sick Pay", sick pay is not always subject to social security and Medicare taxes, and FUTA tax. They list several special cases as follows:
Amounts not subject to social security, Medicare, or FUTA tax.
The following payments, whether made by the employer or a third party, aren't subject to social security, Medicare, or FUTA tax (different rules apply to federal income tax withholding).
Payments after an employee's death or disability retirement. Social security, Medicare, and FUTA taxes don't apply to amounts paid under a definite plan or system, as defined under Sick Pay Plan, earlier in this section, on or after the termination of the employment relationship because of death or disability retirement. However, even if there is a definite plan or system, amounts paid to a former employee are subject to social security, Medicare, and FUTA taxes if they would have been paid even if the employment relationship hadn't terminated because of death or disability retirement. For example, a payment to a disabled former employee for unused vacation time would have been made whether or not the employee retired on disability. Therefore, the payment is wages and is subject to social security, Medicare, and FUTA taxes.
- Payments after 6 months absence from work. Social security, Medicare, and FUTA taxes don't apply to sick pay paid more than 6 calendar months after the last calendar month in which the employee worked.
My settlement met both of these special treatments. I called the insurance company's tax department and they confirmed they reported W-2 correctly. It seems to match the above IRS publication. I prefer not to change anything on W-2 form myself although blank and $0 might be the same regarding tax calculation. This error disappeared if I put $0 on box 3 and 5 instead of leaving them as blank.
