Form 8398 Instructions for Third-Party Sick Pay

Third-party sick pay refers to disability payments made to an employee by a party other than the employer, such as an insurance company. These payments are considered wages subject to employment taxes. The Internal Revenue Service (IRS) provides Form 8922, Third-Party Sick Pay Recap, for employers to reconcile these payments.

The form is filed by the employer, not the employee, to reconcile Social Security and Medicare (FICA) taxes on Form 941, Employer’s QUARTERLY Federal Tax Return, with amounts reported by the third-party payer. This process ensures the correct amount of FICA tax is paid and properly credited.

Determining Your Filing Requirement

An employer must file Form 8922 depending on the agreement with the third-party payer regarding liability for employment taxes. The primary scenario requiring an employer to file is when the third-party payer withholds and remits the employee’s share of Social Security and Medicare taxes but does not assume liability for the employer’s matching share. In this case, the third party provides the employer with a statement of payments, and the employer reports their share of FICA taxes on Form 941 and files Form 8922 to reconcile the amounts.

Conversely, if the agreement states the third party acts as the employer’s agent and assumes liability for both the employee and employer portions of FICA taxes, the requirement changes. The third party handles all tax responsibilities and reports them on its own Form 941. The employer would not include the sick pay on their Form 941 and does not file Form 8922. The legal agreement between the employer and the third-party payer dictates which party is responsible for the employer’s share of FICA taxes.

Information and Documentation Needed to Complete Form 8922

To complete Form 8922, an employer must gather information from the third-party payer and their own payroll records. The third party is required to provide the employer with a detailed statement on or before January 15 of the year after the payments were made.

This statement should include:

• The total amount of sick pay disbursed to employees
• The amount of federal income tax withheld
• The amount of sick pay subject to Social Security and Medicare taxes
• The specific amounts of Social Security and Medicare taxes withheld from the employee

From the employer’s own records, the totals for Social Security and Medicare wages, tips, and taxes as reported on their Forms 941 for the calendar year are needed. These figures represent the tax liability the employer reported and paid on wages they directly issued.

Completing Form 8922

The employer provides their legal name, Employer Identification Number (EIN), and mailing address, which must match other business tax filings. The form also requires the name and EIN of the third-party payer. If more than one third party was involved, the employer must file a separate Form 8922 for each one.

The core of the form is the numerical reconciliation. The employer reports the totals for sick pay payments and the corresponding taxes withheld by the third party. This includes sick pay subject to federal income tax, Social Security, and Medicare taxes, along with the specific tax amounts withheld for each.

Filing Procedures for Form 8922

The deadline for filing Form 8922 is the last day of February of the year following the calendar year in which the sick pay was paid. For sick pay received in one calendar year, the form is due by February 28 (or February 29 in a leap year) of the next year.

The completed form should be mailed to the IRS address designated in the official Form 8922 instructions, which can be found on the IRS website. The correct mailing address depends on the filer’s principal business location. Form 8922 is a standalone filing and is not an attachment to Form 941 or any other tax return.