Reporting of Third-Party Sick Pay
Since no checks have been calculated and created in the CheckMark Payroll program for employees receiving third-party sick pay, their wages are not included in reports such as the Form 941, Form 944 and W-2/W-3 statements. Information regarding sick pay and federal reporting also applies to state reports. For more information about how your state requires reporting of third-party sick pay, see your state instructions or contact your state for more information.
The information included here is for employers where the liability has been transferred to the employer and no optional rules for W-2 have been implemented. For more details about reporting sick pay with special rules, see IRS Publication 15A.
Form 940 Annual Report
Include all wages paid to each employee, including third-party sick pay paid to any employee during the year on your annual Form 940 up to the maximum wages. Wages entered in the Employee window YTD tab are included when calculating Form 940 annual report. These wages will not show on the quarterly breakdown report unless you modify YTD totals for each employee prior to printing the report for 940 deposits.
Form 941 Quarterly report or Form 944 Annual report
Third-party sick pay must be reported on the Form 941 quarterly report (Form 944 annual report) of wages. You will need to report both the employer and the employee parts for both Social Security tax (up to the maximum wages) and Medicare tax for sick pay on lines 5a and 5c of the Form 941 (lines 4a and 4c of Form 944). On line 7b of the Form
941 (line 6a of Form 944) you will need to show a negative adjustment for the employee portion of the Social Security and Medicare taxes withheld from sick pay by the third-party payer. You will also need to report federal withholding wages on line 2. There is more information in Publication 15, Publication 15A or 941 instructions at www.irs.gov.
Steps for Form 941 (Form 944) reporting in Payroll
- Open Federal Taxes on the Command
- Select Form 941 or Form 944 and applicable quarter or annual.
- If necessary, fill in Third-Party Designee information and/or Paid Preparer information and state abbreviation.
- Select Print, a setup screen opens. Enter Social Security and Medicare amount withheld by third-party as a negative number in edit box 7b. (See Publication 15A at www.irs.gov for more information about reporting Third-Party Sick Pay) Adjust amount of deposits on line 11 for the quarter if you have already deposited the employer amount of the Social Security and Medicare taxes. Click OK. The form opens in the Adobe Reader program.
- Modify line 2, federal withholding wages to include sick pay.
- DO NOT modify line 3 to include federal withholding withheld by third- party on sick pay wages. This will be reconciled later on the W-3 statement.
- Modify lines 5a and 5c (on Form 944, lines 4a and 4c) to include sick pay wages paid by third-party payer. Include sick pay wages on line 5a (4a on Form 944) up to the Social Security maximum taxable wages for the year.
Note: Modifications made in the Adobe Reader fill-in form will not automatically carry through the form. Adjust calculations through the end of all pages of the form. If necessary, you will also need to adjust deposits recorded on page 2 of Form 941 (also Form 944) if you are a monthly depositor for employer portions of Social Security and Medicare taxes that were reported to you by the third-party payer.
- If you are a semi-weekly depositor, you will need to make adjustments for any deposits made on the Schedule B.
Note: Calculations made in the Adobe Reader program do not automatically calculate through the form. Be sure to make any necessary adjustments to calculations throughout all pages.