Page 19 - Employers Supplemental Guide

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2. Makes timely deposits of the employee part of social Amounts not subject to social security, Medicare, or
security and Medicare taxes. FUTA taxes. The following payments, whether made by
3. Notifies the employer for whom the employee nor- the employer or a third party, aren't subject to social se-
curity, Medicare, or FUTA taxes (different rules apply to
mally works of the payments on which employee federal income tax withholding).
taxes were withheld and deposited. The third party
must notify the employer within the time required for • Payments after an employee's death or disability
the third party's deposit of the employee part of the retirement. Social security, Medicare, and FUTA
social security and Medicare taxes. For instance, if taxes don't apply to amounts paid under a definite
the third party is a monthly schedule depositor, it must plan or system, as defined under Sick Pay Plan, ear-
notify the employer by the 15th day of the month fol- lier in this section, on or after the termination of the
lowing the month in which the sick pay payment is employment relationship because of death or disabil-
made because that is the day by which the deposit is ity retirement. However, even if there is a definite plan
required to be made. The third party should notify the or system, amounts paid to a former employee are
employer as soon as information on payments is subject to social security, Medicare, and FUTA taxes if
available so that an employer can make electronic de- they would have been paid even if the employment re-
posits timely. For multi-employer plans, see the spe- lationship hadn't terminated because of death or disa-
cial rule discussed next. bility retirement. For example, a payment to a disabled

Multi-employer plan timing rule. A special rule ap- former employee for unused vacation time would have
been made whether or not the employee retired on
plies to sick pay payments made to employees by a disability. Therefore, the payment is wages and is
third-party insurer under an insurance contract with a subject to social security, Medicare, and FUTA taxes.
multi-employer plan established under a collectively bar-
gained agreement. If the third-party insurer making the • Payments after calendar year of employee's
payments complies with steps 1 and 2, earlier, and gives death. Sick pay paid to the employee's estate or sur-
the plan (rather than the employer) the required timely no- vivor after the calendar year of the employee's death
tice described in step 3, earlier, then the plan (not the isn't subject to social security, Medicare, or FUTA
third-party insurer) must pay the employer part of the so- taxes. Also, see Amounts not subject to federal in-
cial security and Medicare taxes and the FUTA tax. Simi- come tax withholding, later in this section.
larly, if within 6 business days of the plan's receipt of noti- Example. Sandra became entitled to sick pay on
fication, the plan gives notice to the employer for whom November 21, 2019, and died on December 31, 2019.
the employee normally works, the employer (not the plan) On January 10, 2020, Sandra's sick pay for the period
must pay the employer part of the social security and from December 24 through December 31, 2019, was
Medicare taxes and the FUTA tax. paid to her survivor. The payment isn't subject to so-
cial security, Medicare, or FUTA taxes.
Reliance on information supplied by the employer. A • Payments to an employee entitled to disability in-
third party that pays sick pay should request information surance benefits. Payments to an employee when
from the employer to determine amounts that aren't sub- the employee is entitled to disability insurance bene-
ject to employment taxes. Unless the third party has rea- fits under section 223(a) of the Social Security Act
son not to believe the information, it may rely on that infor- aren't subject to social security and Medicare taxes.
mation for the following items. This rule applies only if the employee became entitled
• The total wages paid to the employee during the cal- to the Social Security Act benefits before the calendar
endar year. year in which the payments are made, and the em-
• The last month in which the employee worked for the ployee performs no services for the employer during
employer. the period for which the payments are made. How-
ever, these payments are subject to FUTA tax.
• The employee contributions to the sick pay plan made
with after-tax dollars. • Payments that exceed the applicable wage base.
Social security and FUTA taxes don't apply to pay-
The third party shouldn't rely on statements regarding ments of sick pay that, when combined with the regu-
these items made by the employee. lar wages and sick pay previously paid to the em-

Social Security, Medicare, and FUTA ployee during the year, exceed the applicable wage
base. Because there is no Medicare tax wage base,
Taxes on Sick Pay this exception doesn't apply to Medicare tax. For
2020, the social security tax wage base is $137,700
Employer. If you pay sick pay to your employee, you and the FUTA tax wage base is $7,000.
must generally withhold employee social security and Example. If an employee receives $130,000 in wa-
Medicare taxes from the sick pay. You must timely deposit ges from an employer in 2020 and also receives
employee and employer social security and Medicare $10,000 of sick pay, only the first $7,700 ($137,700 –
taxes, and FUTA tax. There are no special deposit rules $130,000) of the sick pay is subject to social security
for sick pay. See section 11 of Pub. 15 for more informa- tax. All of the sick pay is subject to Medicare tax.
tion on the deposit rules. None of the sick pay is subject to FUTA tax. See

Publication 15-A (2020) Page 17