Box 13 Third Party Sick Pay

[Charpatt]

Box 13 Third Party Sick Pay on my W2 is not checked off. However, I received 6 months of temporary disability payments completely payed by a third party. I didn't have to contribute anything towards this. 

This should have been checked off by my employer as far as my understanding goes.

Maybe someone in book keeping got careless... 

Should I just check this off on my Turbo Tax tax return and fill in how much disability I received?

Would the IRS reject my return because of this discrepancy between my W2 Box 13 not being checked off and my checking Box 13 off on my Turbo Tax return?

Would they request an amended W2 from my employer? 

Or is there something I'm overlooking as to why it wasn't checked off? I really don't think so, but just wondering... 

Please reply asap as I need to get my taxes completed ASAP.     

Thank you... 

[PattiF · Accepted solution]

It depends on whether you paid for the cost of the policy or your employer paid for the policy. You said that you did not contribute anything to this. The guidelines are that if your employer paid for the policy, then the third-party sick pay is taxable income.

If your employer paid for the policy: Your third-party sick pay is taxable. You'll receive a W-2 with taxable wages in box 1 and include this W-2 in your return.

If you paid for the policy: Your third-party sick pay isn't taxable.

• You might still receive a W-2, but you don't need to report the W-2 as long as all of the following apply:
  • Box 1 – Wages is $0 or blank
  • Box 12 has Code J
  • Box 13 – Nontaxable sick pay is checked

From a TurboTax Help article about disability payments:

Disability paid by an insurance company for things like lost wages, loss of limb, or loss of sight may or may not be taxable, depending on circumstance:

• If the premiums were paid by your employer and weren't included in your taxable income, the disability is taxable
• If you paid the premiums out of your own pocket or with payroll deductions that came out of your after-tax income, the disability isn't taxable
• If you and your employer jointly paid the premiums, only the disability amount covered by your employer's payments are taxable

[Charpatt · Accepted solution]

OK. Thank you. 

Yes, my temporary disability was completely paid for by a third party. I just thought maybe, somehow, there was something being overlooked because my W2 Box 13 Third-Party Sick pay was not checked. OK, bookkeeping made a mistake and forgot to have that box checked.

I added another question about IRS rejecting my return. Can you go back to my original post and look at this question? Sorry for the hassle...

[PattiF · Accepted solution]

The IRS might not reject your return immediately if you file as though the box for third-party sick pay was checked. Forms are checked for matching and it may take a few months for the difference to be found by the IRS. They will send a letter about the difference in the forms.

If  Box13  was not checked in error, ask your employer for a corrected W-2. You could wait to file the return with the corrected form.

@FregOut 

[Charpatt]

UPDATE: I decided to just go ahead and do my federal and state tax on TurboTax and I completed it yesterday night (Sunday 2/5). The Turbo Tax program had me input everything from the W-2 form into their fields. I checked off box 13 Third Party Sick Pay with the intention of inputing into a field I thought would pop up, the amount of 6 months disability that I recieved. However, I was never directed to any field to input the amount. I was very careful to make sure that I didn't miss anything i.e. any questions or any directions.

It seems that it disregarded my check off of box 13 as if it was inconsequential. I didn't make too much in the 6 months of working in 2022. So maybe it didn't count my Third Party Sick Pay as taxable and maybe that's why my employer didn't check that box either...

Also, my federal return has been accepted by the IRS. It seems if there was a problem with box 13 being checked off by me, and it not being checked off by my employer on the W-2 form, it would have been immediately picked up and rejected; if this is such a glaring conflict. Just wondering if the algorithm would have picked that up...

My state return is still pending being accepted.

OK. Maybe someone might have some input on this.

Thank you very much.

[Charpatt]

UPDATE: I decided to just go ahead and do my federal and state tax on TurboTax and I completed it yesterday night (Sunday 2/5). The Turbo Tax program had me input everything from the W-2 form into their fields. I checked off box 13 Third Party Sick Pay with the intention of inputing into a field I thought would pop up, the amount of 6 months disability that I recieved. However, I was never directed to any field to input the amount. I was very careful to make sure that I didn't miss anything i.e. any questions or any directions.

It seems that it disregarded my check off of box 13 as if it was inconsequential. I didn't make too much in the 6 months of working in 2022. So maybe it didn't count my Third Party Sick Pay as taxable and maybe that's why my employer didn't check that box either...

Also, my federal return has been accepted by the IRS. It seems if there was a problem with box 13 being checked off by me, and it not being checked off by my employer on the W-2 form, it would have been immediately picked up and rejected; if this is such a glaring conflict. Just wondering if the algorithm would have picked that up...

My state return is still pending being accepted.

OK. Maybe someone might have some input on this.

Thank you very much.

[DMarkM1 · Accepted solution]

The "Third Party Sick Pay" box is informational only.  It does not affect your tax calculations.  The box should be checked only if a Third Party paid the benefits or the employer is reporting that a "Third Party" paid the benefits.  

You received a copy of the W2 that was sent to the IRS by the entity that issued the W2.  So, the IRS has the form as reported by the entity that issued it (employer or third party).  You marking the box in TurboTax will not change/affect your taxes or their reporting requirements.

[Charpatt]

OK. So you're saying the IRS, the Third party, and my company are all on the same page regarding my disability payments and so those payments were taxed appropriately because everything is linked up in real time?

Or I'll have to pay the tax latter when I get an IRS letter? 

Yes. I checked it because a third party did pay my disability. OK, so the tax on the disability payments would have been considered and taxed whether I checked Box 13 Third Party Sickness Payments or not...I get it... 

I got a refund so it's a refund minus their tax on my Third Party Sickness Payments? Or maybe since I didn't make that much because I only worked half a year I wasn't taxed on that. 

This is confusing me. Sorry for the hassle but I just don't know much about this world.

Please let me know... 

Thank you

[ThomasM125 · Accepted solution]

As long as you entered your W-2 form in TurboTax the way it listed on the form your tax should be correct. If your disability was not taxable, the entry in box 1 of the form would reflect that by being $0. The entry you made for box 13 would have no affect on this. All that box does is indicate that the benefits came from a third party, it doesn't indicate if they are taxable or not.

[Charpatt]

Yes. I entered everything as on the W2 form ínto Turbo Tax.

Except for Box 13 where I checked Third Party Sick Pay even though my W2 form didn't have it checked. 

OK so my tax refund should be what it is unless some other unforeseen error.

Yes. I read that all these conditions mean I paid for the sick pay and another tax agent replied about this too:

Box 1 = 0

Box 12 = J

Box 13 - Non taxable Sick Pay is checked

My W2 didn't have these conditions. 

Thank you...

[DMarkM1]

Yes you are correct.  Your tax calculations are not affected by you checking box 13 "Third Party" in TurboTax.

[TheTaxmanCommeth]

Does the same apply in reverse? My sick pay was third party and 100% taxable, however, my initial W2 from the insurance company did not check box 13. I just filed my taxes (paying taxes on this amount as shown in box 1), but just received a corrected W2 now checking box 13 “third-party sick pay.” There is no other difference between W2 and W2-c other than this box being checked. In fact, the corrected W2 has no info whatsoever other than box 13 “third-party sick pay” checked. Do I need to refile?

Thanks a lot.

[MarilynG1]

No, you don't need to Amend your Return if your corrected W-2 didn't change your tax outcome.

Just keep both copies of your W-2 with your tax papers.

Here's more info on Do I Need to Amend?

@TheTaxmanCommeth