Third party sick pay is reported to the employer by the insurance company that made the payment to the employee. In most cases, the insurance company has withheld Federal Income Tax, Social Security Tax and Medicare Tax and has made the necessary payments to the IRS. The company is liable for FICA Tax, FUTA Tax and State Unemployment. Payments made to an employee by a third party must be included on the employee’s W2.
To set up 3rd Party Sick Pay:
Select Setup>Payroll Items.
Set up an Other Income type item for 3rd Party Sick Pay.
Select an account from the Expense Account drop-down.
Select the appropriate 3rd Party Sick Pay from the W2 Tracking drop-down.
Third Party Sick Pay - Select this option when there is NO federal withholding tax deducted and the employer is responsible for only the company portion of Social Security and Medicare. The program will calculate the amount of Social Security and Medicare that should have been withheld and show it as a credit in Current quarter's adjustment for sick pay on the 941 form.
Third Party Sick Pay Box 12 - Select this option for any sick pay that was paid by a third party and was not includible in income (and not shown in boxes 1, 3, and 5) because the employee contributed to the sick pay plan. Be sure to also check the FWH, SS EMP, SS CO, Med Emp, Med Co and any other applicable boxes in the Exempt From section.
Third Party Sick Pay FWH By Payer - Select this option when Federal withholding tax has been deducted and the employer is responsible for only the company portion of Social Security and Medicare. Enter the total amount of FWH, SS Emp and Med Emp withheld as a negative amount on the Sick Pay line in the 941 Data dialog when preparing the 941.
To enter the amounts for the employee:
Select Activities>Quick Check or Write Up>Checks.
Change the check Type to Payroll (ATF).
Enter a dummy check number in the Number field.
Enter the appropriate Date.
Enter the Wages in the 3rd Party Sick Pay Item and any taxes withheld for the appropriate employee.
To process the 941:
Select Reports>Tax Forms.
Select the desired 941 report.
Enter the FWH, SS Emp and Med Emp amount as a negative number on the Sick Pay line in the 941 Data dialog when preparing the 941.