Under section 31.3402(o)-3 of the regulations and section 32.1(c) of the
temporary regulations, a third party that makes payments of sick pay other than as an
agent of the employer is liable for federal income tax withholding (if requested by the
employee), as described above, and the employee FICA tax with respect to the sick
pay. The third party is also liable for the employer FICA tax and FUTA tax, unless the
third party transfers this liability to the employer. The liability for the employer FICA tax
and FUTA tax is transferred to the employer if the third party takes the following steps
as set forth in section 32.1(e)(1) of the temporary regulations:
(1) withholds employee FICA tax from the sick pay;
(2) makes timely deposits of employee FICA tax; and
(3) notifies the employer of the sick pay payments on which employee FICA tax
were withheld and deposited.
The third party must notify the employer within the time required for the third party’s
deposit of the employee FICA tax to satisfy the notification requirement.
1
2. Reporting requirements if liability for employer tax is not transferred to the
employer
If the third party that is not the employer’s agent does not follow the requirements
for transferring liability for the employer FICA tax and the FUTA tax to the employer, the
third party is treated as the employer for purposes of liability and reporting of both
1
Section 32.1(g)(3) of the temporary regulations provides that a special rule applies to sick pay payments
made to employees by a third-party insurer under an insurance contract with a multi-employer plan
established under a collectively bargained agreement. If the third-party insurer making the payments
withholds the employee FICA tax from the sick pay payments and makes timely deposits of the employee
FICA tax, and gives the plan (rather than the employer) the required timely notification of the payments,
then the plan (not the third-party insurer) must pay the employer portion of the FICA tax and the FUTA
tax. Similarly, if within six business days of the plan’s receipt of notification, the plan gives notice to the
employer, the employer (not the plan) must pay the employer portion of the FICA tax and the FUTA tax.