An insurer paid our employee disability benefits. Who reports the sick pay on Form W-2?
Third-party sick pay can create shared tax and reporting duties among the employer, insurer and other payers.
By AE Tax Advisors Team · Updated October 28, 2026
Third-party sick pay can create shared tax and reporting duties among the employer, insurer and other payers. Who issues Form W-2 depends on the arrangement and applicable reporting rules, not simply who sent the benefit check. Employer funding and required notices also affect the analysis.
A specific business-owner situation
An insurer pays disability benefits while the employer continues regular payroll for other staff. Neither party should assume the other has reported all taxable sick pay without reconciling the year-end statement.
Illustrative example, not a client result.
What to establish before filing
- Read the sick-pay reporting agreement.
- Determine taxable and nontaxable portions.
- Reconcile deposits W-2 duties and any Form 8922 requirement.
Which fact changes the answer?
Employee after-tax premium funding can change taxability, while the payer arrangement can change reporting responsibility. These are separate determinations.
A mistake to avoid
Do not issue duplicate W-2 income because both parties report the full benefit independently.
Records that support the decision
- Insurance policy and payer agreement.
- Sick-pay statements.
- Payroll reconciliations.
The decision to document
Obtain written confirmation of each party's reporting role before finalizing annual payroll forms.
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Related questions
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Sources and editorial context
- IRS Publication 15: employer tax guide
- IRS Publication 15-A: supplemental payroll rules
- IRS Publication 15-B: employee fringe benefits
General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.