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Excerpt From Our Online Payroll Compliance Course

Social Security, Medicare, And FUTA Taxes On Sick Pay

Third-party sick pay is subject to federal taxation in some cases, but not in all instances.

The taxation requirements depend on many factors including:

The following rules and definitions apply to social security, Medicare, and FUTA taxes on sick pay.

Employer
If the employer pays sick pay to the employee, the employer must generally withhold employee social security and Medicare taxes from the sick pay.

The employer must timely deposit employee and employer social security, Medicare and FUTA taxes. There are no special deposit rules for sick pay.

Amounts Not Subject To Social Security, Medicare, Or FUTA Taxes
The following payments, whether made by the employer or a third party, are not subject to social security, Medicare, or FUTA taxes (different rules apply to income tax withholding):

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