Unless your third-party sick pay was paid with after-tax dollars, your third-party sick pay is taxable. Depending on the coverage plan, premium costs might be covered by the employer, employee, or both parties. Regardless of who is paying the premiums, sick pay is taxable when these premiums are paid with pre-tax dollars.
When the sick pay is paid by the employer or an agent of the employer, there is a mandatory withholding requirement. However, when the sick pay is paid by a third party that is not an agent of the employer, then there is no mandatory withholding requirement because such payments are not considered wages. Thus, that could account for your tax liability being what it is given that the third party paying the sick pay may not have been an agent of your employer.
@Emily E
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