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The Finer Points of Sick Pay

October 7th

If you happen to own a large enough business, or you can offer your employees some form of sick pay, it is important to pay attention to the particulars in the calculations of sick pay, as they will need to be included in your tax statements to the IRS.  In the event that you undergo an IRS audit, it is of the utmost importance to have this documented. Generally speaking, sick pay is defined as any amount that you pay to an employee due to the fact that the employee is unable to work because of sickness or injury. The amounts that are paid through sick pay may be through your own business or that of a third party.


A third party that ends up paying sick pay may include an employees’ trust or an insurance company. There are also other third parties that can be responsible for sick pay, depending upon the specific requirements of your business.

What Taxes Must Be Paid?

No matter who pays for the sick pay, the payments are still subject to Social Security, Medicare, and Federal Unemployment Taxes. At the end of six calendar months, if the employee is still out on sick leave, sick pay does become exempt from these taxes, and may be used as a tax credit.

If you need more information regarding the current tax situation surrounding sick pay, be sure to visit the IRS website at www.IRS.gov. Specifically, you’ll want to see Publication 15-A, because this is a form that specifically pertains to the tax situation regarding sick pay. Matter who ends up paying for sick pay, generally there are taxes attached. Be sure to keep clean records so that you and the IRS can stay on equal footing, and you will avoid IRS debt and penalties.



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