Under the Internal Revenue Code, Section 105, Short and Long Term Disability benefits (“Sick Pay”) may be included in the gross income of an employee, which requires the dealership to withhold applicable taxes. Sick pay is generally subject to FICA tax (social security and Medicare taxes) in proportion to the amount of the premium for such coverage that is paid by the dealership. Any portion of the sick pay paid to the employee that is attributable to the employee’s own contribution to the sick pay plan is not subject to withholding.
However, any sick pay benefits paid to an employee that exceed the applicable wage base when combined with the employee’s gross income are not subject to social security withholding. For 2015, any sick pay benefits that exceed $118,500 per year when combined with the employee’s wages previously paid during that year, are not subject to social security withholding. This wage base limit does not apply to Medicare taxes.
Sick pay generally includes any amount paid under a plan because of an employee’s temporary absence from work due to injury, sickness, or disability and does not include disability retirement benefits or worker’s compensation. A dealership must withhold and timely deposit FICA taxes in the same manner as the withholding and deposit of taxes on regular wages, regardless of whether such benefits are paid directly by the dealership or by an insurance company that services the sick pay plan.
If you are a dealer that pays Sick Pay benefits directly to your eligible employees, or if an insurance company pays benefits to your employees for you, and you would like assistance determining the extent of your responsibility to withhold FICA taxes from such benefits, please contact a member of the Dealer Practice Group for guidance by calling at 248-645-9300 or by email:
Chuck LeFevre, Chair – [email protected]
Lawrence F. Raniszeski – [email protected]
Michael J. O’Shaughnessy – [email protected]
Eric R. Bowden – [email protected]
Alycia Pallach Wesley – [email protected]
Coriann Gastol – [email protected]
