Reporting Third Party Sick Pay on the Employee's W2
- Andrea Boehm
- Lori Nye
Some agencies send a W2 directly to the employee for their third party sick payment. If the employee receives a W2 from the agency for their third party sick payment, no adjustments to the employee records in State Software are necessary.
If Non-Taxable:
Go to Core>Adjustments.
Click Create.
Employee - Find employee by typing in a few characters of first or last name.
Payroll Item - Choose Federal Tax.
Type - Choose Third Party Pay.
Transaction Date - Enter or choose date from calendar.
Amount - Enter in the amount for the non-taxable third party pay.
Description - Enter in a description (optional).
Click Save.
This amount will be printed in Box 12 with Code J.
If Taxable:
Create a Core>Adjustments for the Federal Total And Applicable Gross.
Go to Core>Adjustments.
Click Create.
Employee - Find employee by typing in a few characters of first or last name.
Payroll Item - Choose Federal Tax.
Type - Choose Total Gross.
Transaction Date - Enter or choose date from calendar.
Amount - Enter the amount for the taxable third party pay.
Description - Enter a description (optional).
Click Save.
Go to Core>Adjustments.
Click Create.
Employee - Find employee by typing in a few characters of first or last name.
Payroll Item - Choose Federal Tax.
Type - Choose Applicable Gross.
Transaction Date - Enter or choose date from calendar.
Amount - Enter the amount for the taxable third party pay.
Description - Enter a description (optional).
Click Save.
Repeat the same process for the following records:
Ohio - Total Gross and Applicable Gross.
Medicare - Total Gross and Applicable Gross.
OSDI (if applicable) - Total Gross and Applicable Gross.
Create a Core>Adjustments for the Medicare amount withheld from the benefit by the company.
Go to Core>Adjustments.
Click Create.
Employee - Find employee by typing in a few characters of first or last name.
Payroll Item - Choose Medicare Tax.
Type - Choose Amount Withheld.
Transaction Date - Enter or choose date from calendar.
Amount - Enter the amount withheld (as a positive) from the benefit by the third party.
Description - Enter a description (optional).
Click Save.
The district will need to pay any board amount that is due to properly be reporting on the employee's W2.
Go to Core>Adjustments.
Click Create.
Employee - Find employee by typing in a few characters of first or last name.
Payroll Item - Choose Medicare Tax.
Type - Choose Board's Amount of payroll item.
Transaction Date - Enter or choose date from calendar.
Amount - Enter the board amount (as a positive) paid.
Description - Enter a description (optional).
Click Save.
Contact any city involved for the employee to verify if the amount is taxable by that city, If the payment is taxable by the city, create the following adjustments/
Go to Core>Adjustments.
Click Create.
Employee - Find employee by typing in a few characters of first or last name.
Payroll Item - Choose City Tax.
Type - Choose Total Gross.
Transaction Date - Enter or choose date from calendar.
Amount - Enter the amount for the taxable third party pay.
Description - Enter a description (optional).
Click Save.
Go to Core>Adjustments.
Click Create.
Employee - Find employee by typing in a few characters of first or last name.
Payroll Item - Choose City Tax.
Type - Choose Applicable Gross.
Transaction Date - Enter or choose date from calendar.
Amount - Enter the amount for the taxable third party pay.
Description - Enter a description (optional).
Click Save.
If desired and pays in the current calendar year remain, the city tax amount owed on the payment can be calculated and a Core>Payroll Item>Error Adjustment created, When the employee is processed through a payroll, the error adjustment amount will also be withheld. If this is not desired or there are no remaining payrolls in the calendar year, the employee will pay the tax when they file their taxes with that city.
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There is a special field on the 941 for adjustments needed due to Third Party sick payments and how they relate to Medicare withholdings. The district should reference the 941 instructions as well as the information in IRS Publication 15-A on these payments as needed.
If the notice from the company indicates FICA tax was withheld, the district will need to contact the agency as it is our understanding most school district employees should not have FICA tax withheld from this payment. The agency will need to correct this and issue a new statement as the employee can not recover the incorrect withholding on a tax return, tax returns are for Federal income tax, not Federal FICA or Medicare.
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Example of a Third Party Sick Payment Notification
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