Tax Facts

352 / Is employer-provided sick pay subject to Social Security and federal unemployment tax?

Preretirement wage continuation payments by an employer or an insurance company to an employee because of his or her sickness or disability are subject to Social Security tax (FICA) and federal unemployment tax (FUTA) for the first six calendar months after the last month in which the employee worked for the employer.

After six months, they are exempt from Social Security and federal unemployment tax.1

Payments or parts of payments attributable to employee contributions made to a sick pay plan with after tax dollars are not subject to Social Security or FUTA taxes.

1. IRC §§ 3121(a)(4), 3306(b)(4).

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