How to Process Third Party Sick Pay in Payroll

This is one way of setting up third party sick pay. There are many different ways that third party sick pay is calculated, paid and reported. 

This example assumes the following:

  1. Employee is paid by a third party.
  2. Employee has been on disability less than 6 months
  3. Third party has withheld only the employee portion of SS and Med taxes and deposited the taxes with their own FEIN.

Steps

  1. Set up needed to track third party pay

    1. Set up feature using Other Earnings feature. 



    2. Name it "Third Party Sick Pay", set as prompt for amount.

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    3. Assign feature to employee

    4. Mark Employee Third Party Sick Pay check box

  2. Enter Adjustment quarterly to show the wages and taxes withheld

    1. Enter an Adjustment Date that is within the quarter that the adjustment applies.
    2. Enter amount of earnings into the amount column of the Third Party Sick feature
    3. Enter the amount of SS Tax withheld into the amount column of the Social Security Feature.  Enter the Amount of Earnings into the Tax Wages column.  If the employee has reached the SS Cap, the amount would be entered into the Excess Wages column.  Repeat for the Social Security (Co Portion) feature.
    4. Enter the amount of Medicare Tax withheld into the amount column of the Medicare Feature.  Enter the Amount of Earnings into the Tax Wages column.  Repeat for the Medicare (Co Portion) feature.
    5. e.If you are liable for the FUTA tax, calculate and enter the value into the Amount column of the Federal Unemployment Tax (Co Portion) feature.  Enter the Amount of Earnings into the Tax Wages column. 
    6. If you are liable for the SUTA tax, calculate and enter the value into the Amount column of the State Unemployment Tax (Co Portion) feature.  Enter the Amount of Earnings into the Tax Wages column. 
    7. Enter the Amount of Earnings into the Tax Wages column for the State Income Tax feature.
    8. NOTE: Deductions normally are entered as a negative numbers.  See example above.
    9. Post the adjustment

  3. Adjust the 941

The total amount of Social Security and Medicare taxes withheld by the Third Party Sick Pay Company, needs to be entered on line 7b of the 941.