Important - First verify if your provider will be issuing W-2s 

Contact your third-party provider to confirm if they will be issuing Sick Pay amounts on a separate W-2 (to avoid overstating third-party payment reporting). 

If the provider issues a W-2, we will not include these amounts on the forms we provide or pay associated employer liabilities for those payments.

If you need to include Sick Pay amounts on your employee’s W-2 issued through payroll,  send the statement(s) from your third-party provider to your Payroll Support Team showing the payments made to employee(s).

What is Third-Party Sick Pay (3PSP)?

Third-party sick pay refers to payments made by a third party, such as a state or private insurer, to employees due to a non-job-related illness or injury. 

Third-party Sick Pay (3PSP) includes both short-term and long-term benefits. Pay to the employee is often based on a percentage of their regular wages.  

Short-Term: Taxable for all taxes when benefits are paid to employees.

• Employee taxes are paid by the third-party agency issuing the payment.
• Employer taxes are collected through payroll.

Long-Term: Taxable for Federal and State withholding only when benefits are paid to employees.

• The third-party agency is responsible for tax withholding and payment to the relevant agencies.
• These amounts are reflected on line 2 of the employer’s Form 941. 

Non-Taxable: A portion or all may be non-taxable if the employee has paid into the policy with post-tax dollars through payroll deductions. 

• Appears in Box 12, Code J on the employee’s W-2.

How to report Third-Party Sick Pay (3PSP) 

Is the third-party provider issuing a W-2 for the payments made to the employee?  

If you are unsure, please contact the provider to confirm. 

Yes: If the third-party provider issues a W-2, it does not need to be reported to Auris, thereby avoiding overstating payments and tax liability. 

No: If the third-party provider is not issuing a W-2, send the statements to your Payroll Support Team detailing all payments to employee(s).   

We will enter and process it to include the payments on payroll-issued W-2s and submit the employer tax liabilities on your behalf.

Additional information can be found in IRS Publication 15-A, specifically under Sick Pay Reporting.