What is non-taxable sick pay?

Question

Justin Parker · Accepted Answer

Non-taxable sick pay relates to third-party sick pay, which primarily impacts employees who experience a loss in wages due to an illness or accident outside of work, making them eligible to receive third-party sick pay. This coverage is usually a part of an employee's benefits package.

This kind of compensation is, in most cases, taxable. However, some companies have plans that provide this coverage with after-tax dollars, making it non-taxable sick pay. Sick pay is also considered nontaxable when a death happens during the period in which the employee is being given third-party sick pay.

Most sick pay is taxable and is only considered non-taxable if the insurance premiums are paid using after-tax dollars. Taxes can be paid by the employer, employee, or both parties, depending on the coverage plan the employer uses.

No matter who pays the premiums, sick pay is taxable when premiums are paid with pre-tax dollars.