Is third-party sick pay taxable?
It depends on whether you paid for the cost of the policy, or your employer paid for the policy.
If you paid for the policy: Your third-party sick pay is not taxable.
- You might still receive a W-2, but you do not 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: This box is checked.
If you receive a W-2 like the above, do not include it in your return. If you try to e-file and include this W-2, the IRS will reject your return.
- If your employer paid for the policy: Your third-party sick pay is taxable.
- You will receive a W-2 with taxable wages in Box 1, and you will include this W-2 in your return.