Reporting Disability and Paid Family Leave
October 26, 2021
Reporting Disability and Paid Family Leave

As we approach year end, it is time to make sure you are prepared to report any short-term disability (also known as Third Party Sick Pay or 3PSP) and paid family leave benefits received by employees during the year. To be able to do this properly, there are many aspects that need to be understood, which will be covered in this article.

 

Taxability

So what benefits are taxable to the employee or employer, and which are not?


NYS Mandated Disability

Only the portion of the premium payment made by the employer are taxable. The taxable amount is taxable for ALL employment taxes, employee and employer (FICA, FUTA, SUI, State and Federal). To calculate the taxable portion, you should review how much the employee contributes to the cost of the premium. 


For example: The monthly premium for disability is $4.00. The employee contributes the standard $.60 a week. Take the $.60 times 52 weeks divided by 12 months to calculate the employee’s monthly contribution. That comes to $2.60. Next, divide that $2.60 by the actual premium amount. $2.60/$4.00 equals 65%. That means that 65% of the employee’s benefits received are non-taxable and only 35% are taxable. When completing the original disability claim form, the employer should be sure to indicate the taxable percentage, so the benefits are taxed appropriately. They should also check the statements of benefits when received to make sure that they were taxed appropriately.


NYS Paid Family Leave

When it comes to employer reporting, this is much simpler than disability. All benefit payments received for Paid Family Leave are fully taxable for state and federal taxes.  They are not taxable for FICA, FUTA or SUI.

 

Reporting

So you have received statements of benefits received by your employees from the insurance company. What do you report and what don’t you report?


NYS Mandated Disability

The first thing to determine is what your agreement is with the insurance carrier in regards to this. Some insurance carriers will offer to pay employer matching taxes for Social Security and Medicare, as well as file year end W-2s. I personally don’t recommend this because they don’t cover any potential FUTA or SUI that may be due on those payments. If you do have an agreement like this in place, you need to determine if any of the payments are not excess wages for FUTA and SUI and if so, somehow get them recoded in your payroll system. I personally have never found a payroll system that handles this well. If you don’t have such an agreement in place, then it is your responsibility to record the benefits received by your employees so they can be taxed appropriately for the employer portion of taxes and included on the employee W-2. Most payroll systems have a setup in place for specifically recording Disability or Third Party Sick Pay.

 

NYS Paid Family Leave

This is much easier for employers, fortunately. There is no reporting requirement on the part of the employer. The insurance company should issue a 1099 to the employee for benefits received during the year.

 

Tax Withholding

So can my employees elect to have state and federal taxes withheld from their benefit payments? 

 

NYS Mandated Disability

Most insurance companies will allow employees to complete withholding forms if they would like to have state and federal taxes withheld from their benefits. If an employee does not complete and submit these forms, no withholding will happen, and the employee will be responsible for the tax liability with their personal income tax filing.

 

NYS Paid Family Leave

While the NYS DOL does state that an employee can elect to have taxes withheld, we have found that some insurance companies actually don’t offer this option and suggest that the employee make estimated tax payments if they are concerned about their tax liability.

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2026 Retirement Plan Contribution Limits Raised by IRS: Key Updates for 401(k) and More

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The IRS recently announced the updated retirement plan contribution limits for 2026, reflecting cost-of-living adjustments and new guidance under the SECURE 2.0 Act. Whether you’re an employer managing a company plan or an employee planning for your future, these changes are important to understand so you can make the most of your retirement savings. Key Increases for 2026 Some of the most notable updates for defined contribution plans, including 401(k), 403(b), and 457(b) plans, are summarized in the chart below: 

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When HR Is Overloaded, Your Business Feels It For many small to mid-sized businesses, HR is one of the most critical (and most overextended) functions. From payroll and benefits to onboarding and compliance reporting, administrative tasks can quickly consume your team’s time, leaving little room for strategic work that actually moves the business forward. Sound familiar? You’re not alone. A recent survey from Champions of Change: isolved’s Fourth-Annual HR Leaders’ Research Study found that 51% of HR leaders spend four or more hours a day answering repetitive questions. This time could be better spent on employee engagement, culture, and growth initiatives. When HR teams are pulled in too many directions, the consequences ripple across the entire organization, resulting in missed deadlines, frustrated staff, compliance risks, and ultimately, higher turnover. Why HR Leaders Consider Outsourcing Outsourcing HR isn’t just for businesses without dedicated HR teams. 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The True Cost of Administrative Overload Overburdened HR teams don’t just affect your internal operations; they impact your employees’ experience. Inconsistent onboarding can create a rocky first impression for new hires. Delayed payroll or benefits questions lead to frustration and decreased trust. Compliance oversights expose your business to fines and legal risk. Even small inefficiencies add up. According to the National Association of Professional Employer Organizations (NAPEO), organizations that leverage an outsourced HR model achieve an average ROI of 27.2% per year, saving around $1,775 per employee while paying $1,395 per employee for outsourced services. That’s not just cost savings, it’s a reinvestment in your team and your business. The Power of Strategic HR Outsourcing Outsourcing doesn’t mean giving up control or handing HR off to a faceless provider. Done strategically, it’s about extending your team. Administrative tasks like payroll, benefits, onboarding, and reporting can be handled efficiently by experts, while HR teams gain confidence that compliance requirements are being met. Most importantly, it frees internal HR to pivot from reactive, day-to-day tasks toward engagement, culture-building, and retention strategies. Outsourced HR support can scale with your business, providing additional expertise during busy periods, leaves of absence, or rapid growth phases. The impact is clear. Teams feel supported, employees feel heard, and the organization operates smarter, not harder. With the right outsourcing partner, a small HR team can act like a team of 10, and a team of five can perform like a team of 25, all while maintaining compliance and efficiency. Retention Starts With the Right Employee Experience When administrative burdens are reduced, HR teams can focus on creating meaningful experiences for employees. Transparent processes around pay, benefits, and policies build trust. Faster, more organized onboarding leaves a strong first impression. Access to modern self-service HCM tools empowers employees to manage their own information, reducing repetitive questions and improving engagement. By leveraging experienced HR professionals to handle gaps in internal processes, organizations can enhance overall employee satisfaction, ensuring every interaction, from onboarding to open enrollment, feels seamless and supportive. A Smarter Approach to HR Means a Stronger Business Across industries, companies are recognizing that HR outsourcing is no longer a luxury. It’s a strategic advantage. Organizations that adopt a blended model of technology and advisory support report measurable reductions in administrative workload, cost savings compared to maintaining fully in-house HR teams, and improved engagement for employees. Strategic HR outsourcing allows internal teams to shift from transactional tasks to big-picture initiatives, creating a more resilient, efficient, and high-performing workforce. At the end of the day, HR isn’t just a function; it’s the backbone of your organization. When it’s overextended, the entire business suffers. But with the right support, HR teams can focus on meaningful initiatives, employees feel more valued, and the business benefits from measurable ROI. Strategic HR outsourcing isn’t about replacing your team, it’s about empowering it. Your people, your culture, and your bottom line all benefit. Curious how Simco's HR Advisory services can help your business? Let's talk today.

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