Generally, a taxpayer must report as income any amount that the taxpayer receives for personal injury or sickness through an accident or health or insurance plan that is paid for by their employer.
However if the cost of the insurance plan that pays the benefit was paid by the taxpayer, then the benefit is not considered taxable. Also, if both the taxpayer and the taxpayer's employer pay for the plan, only the amount that the taxpayer receives that is due to the employer's payments is reported as income.
If the taxpayer received a Form W-2 with only third-party sick pay in box 12 noted by Code J, do not report the information on the tax return. Third-party sick pay reported in box 12 with Code J is not taxable. (Additionally, a return containing a W-2 with $0 in box 1 would reject if e-filed.)
Third party sick pay reported in Box 1 of the W-2 is considered taxable income and should be reported as such.
Note: This is a guide on entering Third Party Sick Pay into the TaxSlayer Pro program. It is not intended as tax advice.