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ck2019
Level 2

Insurer did not withhold FICA taxes on third-party sick pay - is this an error?

In 2020, I received sick pay from a short-term disability insurance plan through my employer, who pays the full premium (no cost sharing). I received a separate W-2 from the insurer but noticed that no Social Security or Medicare taxes were withheld. The full amount was reported as federal taxable wages in box 1, but SS/Medicare wages and withholdings show as 0 in their respective boxes. From my research, it seems that in my case for short-term disability payments for which my employer pays the full premium, FICA taxes should be withheld. I checked my normal employer W-2 and didn't see any FICA taxes beyond the normal 6.2% for SS and 1.45% for Medicare withheld either. Is this an error, or is this the proper way to handle my sick pay in my case?

5 Replies
SweetieJean
Level 15

Insurer did not withhold FICA taxes on third-party sick pay - is this an error?

You are essentially correct under normal circumstances.  However, only the first six months of Sick Pay are subject to FICA withholding.

 

However, an Executive Order signed by former President Trump did this:

Starting with pay dates on or after September 1, 2020 the 6.2% employee portion of Social Security tax can be deferred for employees making up to $4,000 in applicable wages on a bi-weekly frequency, not to exceed an annual pay of $104,000.  The repayment of the deferral is due December 31, 2021.

 

Please check with the insurer to see if this is what it did. (reference IRS Notice 2020-65)

ck2019
Level 2

Insurer did not withhold FICA taxes on third-party sick pay - is this an error?

Thanks for the reply! I was paid for less than six months of sick pay, and this was at the beginning of 2020. I'll reach out to the insurer to see what they say.

RHET
New Member

Insurer did not withhold FICA taxes on third-party sick pay - is this an error?

Not sure if my situation is similar to yours.

I was on Short Term Disability early part of 2020 and employer paid portion of my salary under STD FICA. 

I think this is federally taxable but CA state may not require tax on it.

I asked many places and they are not familiar with my situation. Only one representative from FTB (CA state tax), was able to say this is not taxable. He refer me to:

https://www.ftb.ca.gov/forms/2020/2020-540-ca-instructions.html

Somewhere in Section A:

Sick pay received under the Federal Insurance Contributions Act and Railroad Retirement Act. California excludes this item from income. Enter in column B the amount of these benefits included in the amount in column A.

Now I need to see how to do it with TurboTax.

Anyone who could help, is greatly appreciated

 

ReneeM7122
Level 8

Insurer did not withhold FICA taxes on third-party sick pay - is this an error?

You report the disability income in the Income & Wages section of TurboTax.  Your total short-term disability wages will be listed in box 1 on your W-2.

Here is a TurboTax article about disability payments.

ck2019
Level 2

Insurer did not withhold FICA taxes on third-party sick pay - is this an error?

Just an update in case anyone comes across this thread in the future: I contacted the insurance company through with my short-term disability benefits were paid out. They told me that FICA taxes indeed should have been withheld on the payment (in my case where I received payment at the beginning of 2020 for less than 6 months) and that this was an error on their part. I haven't heard back from them yet on any further action.

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