Trustmark Responsibilities related to Disability Insurance
We deduct and pay the employee portion of Federal Income Contribution Applied (FICA) from the employee disability check and Federal Income Tax (FIT) if elected by the employee. We send a monthly report to the employer identifying amounts deducted and reported to the IRS. FICA is automatically deducted from weekly disability income (short-term disability) benefits for payments made in the first six calendar months after the last calendar month the employee worked. Long-term disability is not subject to FICA, unless the elimination period is less than six calendar months after the last calendar month in which the employee worked, and benefits are paid during this period. The portion of the benefits where the employer pays premium will always be fully taxable.
Trustmark reports and pays the employee portion of FICA and FIT within Form 941 under our tax ID number.
We send a summary FICA report in mid-January for the preceding year to each Group Plan Administrator. The report will list each employee on disability and the corresponding amounts withheld, reported, and paid to the IRS.
Group Employer Responsibilities
Employers receive a monthly report of taxable income from us. The amount of FICA withheld on the employee’s disability payment should be matched by the employer and filed with regular payroll taxes. The monthly reports will summarize the amounts indicated on the check copies issued to the group at the time of benefit payment.
Employers file their portion of FICA payments on Form 941 under their group tax ID number along with other payroll filings.
Employers receive an annual report from us, which includes the employee portion of FICA and FIT on the W-2 along with other regular wages and amounts withheld. Please note that you can issue separate W-2 sick pay forms, which include the amount of disability paid, and amounts withheld.
A note about federal tax
: Employees on disability may opt for Trustmark to withhold federal taxes from their disability checks. If taxes are withheld, this information will appear on the monthly reports and the employer needs to include this tax information on W-2s. If the employee does not have taxes withheld from disability checks, the employee is responsible for federal income tax payment and filing to the extent that the benefit is taxable.
Disability Benefits, Taxes and Section 125
If the employer provided 100% payment of premiums, all benefits are subject to taxes. If the employee pays any percent of the premium with pre-tax dollars, all benefits will be subject to taxes. For example, if the employer paid 50% of premiums and the employee paid the other 50% of premiums with pre-tax dollars, all benefits would be subject to taxes.
If the employee pays any percent of the premium with after-tax dollars, all benefits will not be subject to taxes. For example, if the employer paid 50% premium and the employee paid the other 50% premium with after-tax dollars, 50% (or any other percentage of employee premium paid with after-tax dollars) of benefits would not be subject to taxes.
It is important to remember when employees use pre-tax dollars to pay premiums, benefits are taxable, but when employees use after-tax dollars to pay premiums, that percentage portion is not taxable.
: *** Please note, FICA and FIT handling is different for Administrative Services Only (ASO) groups. The group is responsible for paying the employee and employer portion of FICA and any FIT withheld. We will send the group a check, issued from their claim account, reimbursing them for any employee portion of FICA and FIT withheld.***
WE HAVE PROVIDED THIS INFORMATION FOR GUIDANCE PURPOSES ONLY. CONSULT YOUR TAX ACCOUNTANT WITH ANY SPECIFIC QUESTIONS.