Notice 2015-6: Reporting Sick Pay Paid by Third Parties
Notice 2015-6, issued by the Internal Revenue Service (IRS), establishes guidelines for reporting sick leave pay provided by a third party on behalf of an employer. This applies to situations where the responsibility for Federal Insurance Contributions Act (FICA) taxes on sick leave wages is shared between the employer and the third party.
What is Third-Party Sick Leave Pay?
Third-party sick leave pay occurs when an employer contracts with another entity, such as an insurance company or disability plan provider, to pay out sick leave benefits to employees. While the third party distributes the funds, the employer might still be responsible for a portion of the associated taxes.
Who Needs to File Form 8922?
Employers: Employers who offer sick leave benefits administered by a third party are required to file Form 8922.
Third-Party Administrators: Insurance companies, disability plan providers, or any other entity that directly pays sick leave benefits on behalf of an employer need to file Form 8922.
What taxes are withheld from Third-Party Sick Leave Pay?
FICA Taxes (Federal Insurance Contributions Act): FICA taxes include Social Security and Medicare taxes. Notice 2015-6 clarifies how the responsibility for withholding FICA taxes is split between the employer and the third-party administrator based on specific regulations.
FUTA Tax (Federal Unemployment Tax Act): Similar to FICA, the responsibility for FUTA tax withholding may be shared between the employer and the third party.
Income Tax Withholding: The third-party administrator is typically responsible for withholding income tax from the sick leave payment.
Who is Responsible for Filing Form 8922?
Both the third-party provider and the employer are responsible for filing Form 8922. The purpose is to reconcile their respective reporting of the sick leave wages and ensure accurate tax reporting.
Key Points to Remember About Notice 2015-6
Effective Date: Applies to sick leave pay paid on or after January 1, 2014.
No Change in Tax Liability: Notice 2015-6 does not affect the overall tax liability for sick leave pay (FICA, income tax withholding, FUTA).
Form 8922 Filing: Both third parties and employers may be required to file Form 8922 depending on the specific situation and FICA tax responsibility.
Does Notice 2015-6 change the way I calculate FICA taxes on sick leave?
No. Notice 2015-6 clarifies the reporting process but doesn't alter the existing FICA tax regulations. The applicable regulations determine how the FICA tax liability is shared between the employer and the third party.
What happens if the third party doesn't notify the employer within six business days?
If the third party fails to notify the employer within six business days of receiving notification about sick leave payments, the employer becomes responsible for paying both the employer and employee portions of the FICA tax and FUTA tax.
How does Notice 2015-6 impact my income tax withholding on sick leave?
The income tax withholding on sick leave remains subject to existing regulations. You should consult with your tax advisor or the IRS for specific guidance on your individual circumstances.