Employers should note that a new IRS Form replaces the “Third-Party Sick Pay Recap” previously reported on Form W-2, Wage and Tax Statement. For wages paid in 2014, new Form 8922, Third-Party Sick Pay Recap, is used to reconcile employment tax returns with Forms W-2 when third-party sick pay is paid.
Third-party sick pay is sick pay that is paid to an employee by some person (the third party) other than the employer for whom services are normally performed. The Internal Revenue Code provides that any third party that pays sick pay that is included in wages must be treated as the employer for purposes of FICA and FUTA with respect to such wages (except as provided in the regulations).
A third-party payer of sick pay can be either an agent of the employer or a third party that is not an agent of the employer. In general, a third-party payer is an employer’s agent if the third party bears no insurance risk and is reimbursed on a cost-plus-fee basis for payment of sick pay and similar amounts.
Liability for FICA, FUTA, and Income Tax Withholding on Sick Pay
If sick pay is paid by the employer of the employee, the employer is liable for withholding and payment of employee FICA tax and federal income tax withholding from the sick pay that is wages, and the employer is also liable for the payment of employer FICA tax and FUTA tax with respect to the sick pay.
Where a third party makes payments of sick pay as the employer’s agent, the employer remains liable for the FICA tax, FUTA tax, and income tax withholding on the sick pay (unless otherwise agreed).
A third party that makes payments of sick pay other than as an agent of the employer is liable for federal income tax withholding (if requested by the employee), and the employee FICA tax with respect to the sick pay. The third party is also liable for the employer FICA tax and FUTA tax, unless the third party transfers this liability to the employer.
New Form 8922
Form 8922 must be used for filing “third-party sick pay recaps” to reconcile the reporting of sick pay paid by a third party on behalf of employers to employees in situations in which the liability for FICA taxes on the sick pay is split between the employer and the third party under applicable regulations.
Whether the employer or the third party is required to file the Form 8922 depends on which entity is filing Form W–2 with respect to the sick pay. An employer is required to file Form 8922 when the third party is liable for the employee FICA tax and income tax withholding, the liability for the employer FICA tax has been transferred to the employer, and the employer and third party have entered into an agreement to have the third party act as the employer’s agent for reporting on Forms W–2.
Form 8922 must be filed by March 2, 2015. Click here for more rules and requirements concerning third-party sick pay.
Our section on Employer Tax Laws provides important information for employers on employment taxes.
Jeffrey R. Ungvary President