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FICA Taxes on NYS Disability

I just started at a new company in payroll and was reviewing their 3rd party sick pay for NYS Disability checks cut in the last few months. I noticed that they are only taxing a portion of the disability amount for SS & Medicare and when I asked the insurance carrier, they said that it is being taxed at 42% per capita. I have never seen it done like this before and I'm really struggling to find anything on the IRS or NYS website regarding the taxation or if it does say something the wording it throwing me off. The employee does contribute the full $0.60 NYS premium. Has anyone ever seen it calculated in this way before?

Comments

  • David WarrenDavid Warren ✭✭✭✭

    Is the employer public sector? Or something other then a vanilla private sector employer?

  • Employer is private sector. They said they are adding the administration cost to the employee premium to determine the taxable rate. I have never seen state disability calculated in this manner and the previous company they used also calculated at 100% taxable.

  • David WarrenDavid Warren ✭✭✭✭

    With a vanilla private sector company, if the employee pays with post-tax deductions, the benefit is non-taxable. If the benefit is paid for by the employer or with employee pre-tax deductions, you have a taxable benefit. I am not familar enough with your state's law to say yes or no to somehow charging you some administrative cost, but I do not see how that makes part of the benefit taxable. Possibly if the payment would otherwise be non-taxable, but it sounds odd. You can try posting on the Benefit Links website. That is where the benefits heavy hitter hang out.

    rrupert
  • It seems they are saying the employee deduction amount is 52%, which would be non-taxable. Since in NY the employee only pays a MAX of .60 week, I find this a little hard to believe. I know NJ taxable can change per person based on how long they have been working and the last time they were paid for disability (if ever). I think the lowest taxable I have seen in NJ was 15% of payment. I would ask the insurance carrier to show you how they are calculating this amount and what law they are following....

  • David WarrenDavid Warren ✭✭✭✭

    NY (or NJ or any other state) has nothing to say about how federal law works (FIT/FICA/FUTA). Assuming a valid Section 125 plan is in place, if the employee pays the deduction with post-tax dollars, the benefit is non-taxable. If the employer pays the deduction or the employee pays with pre-tax dollars, the benefit is taxable. This is black letter law, spelled out in IRS publication 15B.

    If on the other hand you are talking solely about NY specific taxes, and NY and only NY sets the rules. I do not know NY law well enough to have an opinion of that.

  • David, Just an FYI, NJ has a state disability plan that the employees do pay into so only a portion is considered taxable income under federal, section 125 plan not required. NY is similar in that a max of .60 is deducted from each employee, however the employer must buy "private" disability insurance or be self-insured.

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