"Sick pay" is a payment to you to replace your regular wages
while you are temporarily absent from work due to sickness or personal
injury. To qualify as "sick pay," it must be paid under a plan to
which your employer is a party.
If you receive sick pay from your employer or an agent of your
employer, income tax must be withheld. An agent who does not pay
regular wages to you may choose to withhold income tax at a flat 28%
rate.
However, if you receive sick pay from a third party who is not
acting as an agent of your employer, income tax will be withheld only
if you choose to have it withheld. See Form W-4S,
later.
If you receive payments under a plan in which your employer does
not participate (such as an accident or health plan where you paid all
the premiums), the payments are not sick pay and usually are not
taxable.
Union agreements.
If you receive sick pay under a collective bargaining agreement
between your union and your employer, the agreement may determine the
amount of income tax withholding. See your union representative or
your employer for more information.
Form W-4S.
If you choose to have income tax withheld from sick pay paid by a
third party, such as an insurance company, you must fill out Form
W-4S. Its instructions contain a worksheet you can use to figure
the amount you want withheld. They also explain restrictions that may
apply.
Give the completed form to the payer of your sick pay. The payer
must withhold according to your directions on the form.
If you do not request withholding on Form W-4S, or if you do
not have enough tax withheld, you may have to make estimated tax
payments. If you do not pay enough estimated tax or have enough income
tax withheld, you may have to pay a penalty. See chapters 2
and 4.
Form W-4S remains in effect until you change or cancel it, or
stop receiving payments. You can change your withholding by giving a
new Form W-4S or a written notice to the payer of your sick pay.
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