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DISABILITY INCOME BENEFITS SUBJECT TO FICA TAX
Effective January 1, 1982, Congress passed Public Laws 96-601 and 97-123 making certain
disability income benefits subject to FICA and Federal Income taxes.
When an employer participates in Social Security and the employer pays a portion of
the disability premium, the disability benefit paid to the employee is taxed according
to the ratio of the employer's premium contribution. For example, if the employer pays
50% of the premium, then 50% of the disability benefit is subject to FICA and Federal
Income tax. Only the benefits paid during the first six months from which the disability
began are subject to FICA taxes.
When disability premiums are exempt, fringed or sheltered under IRS code Section 125
("cafeteria plan"), benefits paid are subject to FICA and Federal Income taxes.
Disability premiums exempt under a Section 125 are considered employer paid premiums.
In order for American Public Life to properly withhold, you will need to complete the
Employer's Statement on the claim form. The question indicated by the bold "REQUIRED"
on the Employer's Statement regards the premium information needed for us to determine
how to properly handle FICA deductions. You will receive a quarterly report from us
which indicates the amount withheld for each disabled employee and reported to the IRS
on Form 941. We file this report with the IRS on a quarterly basis. As the employer,
you are required by law to match the amount of FICA tax withheld and remit it as you do
your regular payroll FICA tax. You will receive a full report of all tax deductions
made from disability benefits of your employees in January for the previous year to assist
you in preparing their W-2 statements. American Public Life will send a statement of
disability payments made for the year to each employee in January for their use in
filing their income tax returns.
For additional information, please refer to Circular E-SICK PAY or Publication
15-A, Employer's Supplemental Tax Guide, a supplement to Circular E.
< Return to Disability Claims & Instructions
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