The Problems in Claiming Adjustment Credits for FICA Paid on Sick Pay

Although employers have not been required to withhold or pay Federal Insurance Contribution Act (FICA) or Federal Unemployment Tax Act (FUTA) tax on sick pay since 1939, many employers ignore these exclusions for sick pay in order to avoid extra bookkeeping. The result is that there have been substantial overpayments in many instances. In view of the rapidly increasing wage bases subject to employment taxes, exemptions form the taxes such as the sick pay exclusions increasingly take on added economic significance. Consequently, many employers may wish to revise their payroll practices and heed the sick pay exclusions. Moreover, these employers may desire to claim refunds for the overpaid taxes for prior years.