Sick pay refers to compensation you receive to replace your normal earnings while you’re temporarily unable to work due to illness or injury.
Sick Pay Provisions
To be classified as sick pay, the payment must come from a plan involving your employer. If your employer or their representative provides this payment, income tax is required to be withheld.
A representative who doesn’t handle your regular wages may opt to withhold tax at a fixed rate. On the other hand, if sick pay comes from a third party not affiliated with your employer, tax withholding occurs only if you specifically request it.
If the payments are made under a plan that your employer doesn’t contribute to—like a health or accident plan for which you paid all the premiums—these payments are not considered sick pay and are generally not taxable.
Union Agreements
If your sick pay comes through a collective bargaining agreement between your employer and your union, the agreement may dictate the income tax withholding terms. For further details, consult your employer or union representative.
Form W-4S
To have income tax withheld from sick pay provided by a third party, such as an insurance company, you’ll need to complete Form W-4S. The form includes a worksheet to calculate the withholding amount and provides guidance on any applicable limitations.
If you don’t complete Form W-4S or don’t withhold enough tax, you might need to make estimated tax payments. Failure to pay sufficient tax through withholding, estimated payments, or a combination of both could result in a penalty.