As September winds down, W-2s and year-end tax reporting may not be top of mind, but that’s exactly why now is the time to act.
At CommPayHR, we’ve seen it happen more than once: business owners enter January feeling confident everything is wrapped up, only to be blindsided by a last-minute tax issue tied to third-party sick pay. The result? Amended W-2s, late filings, IRS penalties, and avoidable stress.
This is your timely reminder: late September is the ideal window to prevent one of the most common, and costly, payroll mistakes business owners face at year-end.
What Is Third-Party Sick Pay and Why It Matters
Third-party sick pay refers to disability payments made directly to your employees by an outside insurance carrier, not by your business. These payments may cover short- or long-term disability when an employee is out of work for medical reasons.
Here’s the critical part: even if your business isn’t issuing the payment, you’re still responsible for ensuring that income (and the associated taxes) are accurately reported on your employees’ W-2s.
The challenge? Disability insurers often don’t send those reports until mid- to late January, which is after most employers have closed payroll and submitted W-2s. At that point, you’re left cleaning up the mess, and the IRS still holds you accountable.
Why Late September Is the Time to Act
By the time the holidays roll around, your attention will shift to bonuses and closing out your books, not disability payment reconciliations. Acting now means you can get ahead of the issue and avoid a January scramble when options are limited.
Here’s how to stay ahead of the curve:
- Contact your disability insurance provider for a year-to-date statement of claim payments.
- Check your carrier’s online portal for benefit reports.
- Flag these payments for your payroll provider before W-2 processing begins.
- Send statements to your payroll team if employees are currently receiving disability payments.
- Retrieve and submit December benefit statements for employees still receiving payments at year-end.
- Forward any tax notices or benefit updates from your state to your payroll team promptly.
Why Employers Trust Commonwealth Payroll & HR
This issue rarely gets attention until it creates a problem. That’s why we’re talking about it now: so you don’t have to deal with the January scramble.
At CommPayHR, we don’t just process paychecks. We help our clients stay compliant, anticipate problems, and gain peace of mind knowing nothing will slip through the cracks. When you choose us as your payroll partner, you’ll have a dedicated Customer Service and Support Specialist who knows your business and is just a phone call or email away. Because payroll isn’t just about paychecks; it’s about people. And we’re here, year-round, to help you protect both. Contact us today to learn how we can support your team.
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