This chapter provides basic information regarding sick pay. If you make creditable sickness payments, you may wish to call or write to the Quality Reporting Service Center (QRSC) for the manual, Reporting Instructions for Creditable Sickness Payments. QRSC's address, telephone and fax number is listed on the title page.

Sick pay is creditable as Tier I compensation only. Sick pay does not yield service months, is not creditable as Tier II compensation, is not creditable as compensation under the Railroad Unemployment Insurance Act (RUIA), and is not subject to the hourly supplemental tax.

There are three exceptions where sick pay is not creditable or taxable as Tier I compensation. The exemptions are:

• sick pay paid by the RRB under the Railroad Unemployment Insurance Act for an on-the-job injury;
  
• sick pay paid subsequent to the sixth month following the month the employee last worked; and
  
• sick pay paid in the year after the employee died.

The exemption for crediting sick pay through the sixth month following the month the employee last worked does not mean that creditable sick pay is limited to six months in a year. If an employee returns to work and is off sick again, a new six month period begins from the month following the latest date worked.

If you are paying supplemental sick pay under a plan whereby you pay the difference between the sick benefits paid by the RRB and a set amount, such as the employee's regular salary, you will need to have your plan approved by the RRB. You may also want to establish a procedure to receive notification from the RRB of sickness benefit payments so that your payments are coordinated with RRB Sickness benefits. Contact the Chief of Records Analysis and Systems at (312) 751-3362 for information on getting a plan approved and on receiving benefit notification.

Sickness benefits paid by the Railroad Retirement Board (RRB) under the RUIA, Provident, Trustmark or other supplemental benefit payer, are considered for crediting and tax purposes to be paid by an agent of the employer. These sickness benefits are creditable and taxable in the same way as if the employer had made the payments.

1. Sick Pay Paid by the Rail Employer

Regular employers who pay sick pay to their employees, are responsible for filing compensation reports and for withholding and paying all applicable taxes in regards to sick pay. The employer files the reports under the employer's regular BA and EIN numbers. The employer can include the sick pay compensation with the other compensation on the employee's Form W-2.

2. Sick Pay Paid by RRB or an Insurance Company who has Established Sick Pay Employer Status under the Railroad Retirement and Railroad Unemployment Insurance Acts

The RRB will assign insurance companies who pay creditable sick pay with a BA number for accounting purposes. Insurance companies having BA numbers are referred to in these instructions as sick pay employers.

RB/ Sick Pay Employer Responsibilities:

• Withhold the employee Tier I tax from the sick pay;
  
• Deposit the tax withheld with the IRS;
  
• Notify the employer of the sick pay paid to its employees;*
  
• File Form CT-1 with IRS to report employee Tier I tax on sick pay using the sick pay payer's EIN;
  
• File Form BA-10 with the RRB using the sick pay payer's BA number; and
  
• File Forms W-2 and W-3 with the SSA. Regular and dummy forms may be required. See Part VI, Chapter 6 and IRS Publication 952 for detailed instructions

Railroad Employer's Reporting Responsibilities:

• Pay the employer matching Tier I tax, up to the annual Tier I maximum on combined earnings, when notified of the sick pay;
  
• Include on Form CT-1 filed with IRS, the employer matching Tier I tax on sick pay.

*For example, the RRB uses Form Letter ID-6, Transmittal Report of Tier I Tax Transactions, to notify railroad employers of the amount of sickness benefits paid.

3. Other Sickness Payers

An employer may arrange for a third party to act as the employer's agent for the payment of sick pay. The employer may or may not arrange for the third party to provide administrative services for the employer such as filing Forms CT-1 and BA-10. These responsibilities are divided by agreement between the employer and the third party. If the third party does provide such administrative services, they are doing so as an agent of the railroad employer and not as an employer under the RRA. Therefore, the third party would file Form BA-10 using the rail employer's BA number. The employer would include the sick pay compensation on the employee's Form W-2 along with other compensation.