Income tax withheld by third-party payer - irs 2025

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Third party arrangements Employers may designate or enter into an agreement with a third party in which the third party agrees to take over some or all of the employers Federal employment tax withholding, reporting and payment responsibilities and obligations.
These payments are also reportable as Personal Income Tax (PIT) wages, which are wages subject to California PIT. Even though PIT withholding on these wages is not mandatory, the wages are considered taxable income to the recipient and must be reported on the recipients California income tax return.
Where sick pay benefits are paid by an insurance company or other third party, withholding for income taxes is not automatically required. Federal income taxes must be withheld by the payer only if requested by the employee receiving sick pay.
Give Form W-4S to the third-party payer of your sick pay, such as an insurance company, if you want federal income tax withheld from the payments.
Payments for sickness or accident disability made by a third party are not subject to California personal income tax withholding unless a request has been filed pursuant to Section 13028.6 of the code. (b) Reporting Requirements.
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People also ask

Third-Party Reporting Promotes Accurate Business Income Reporting. In many cases, the tax law requires third-party payers, such as small businesses or individuals, to report to the IRS payments they have made to subcontractors, attorneys, architects and other service providers.
I know taxable w-2 third party sick pay counts as earned income for a traditional or roth IRA account and for the Earned Income Credit.

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