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Category: Tax Questions

Third Party Sick Pay

Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer.  If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income.

If the taxpayer received a Form W-2 with only third-party sick pay, which would be noted by a Code J in box 12 on the Form W-2, do not report the information on the tax return.  Third-party sick pay reported in Box 12 with Code J is not taxable.  If the return is transmitted to the IRS with $0 in box 1, the IRS will reject the return.

Third party sick pay reported in Box 1 of the W-2 is considered taxable income and should be reported as such.

Additional Links:
IRS Publication 525 - Taxable and Non-taxable Income

Last Updated: 4/21/2017

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