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Subject Author Date
Sick pay count as earned income? Ernie Klein 03-29-2008
Posted by Ernie Klein on March 29, 2008, 7:56 pm
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 Taxpayer had no income during 2007 except non-taxable disability pay and
$12,000 sick pay.

Taxpayer received a W2 with $12,000 in box 1 and "Third Party Sick Pay"
checked in box 13.

Does the $12K sick pay count as earned income toward EIC?

TurboTax sure thinks it does, even with box 13 checked, TT calculates a
$4,700 refund (HOH), even though taxpayer paid and owed no tax for 2007.
I can't find anything in the Pubs that speak to sick pay counting (or
not counting) toward EIC. Taxpayer could sure use the extra $4.7K if
this is correct.

--
-Ernie-

--
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Posted by removeps-groups@yahoo.com on March 30, 2008, 3:15 pm
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> Taxpayer had no income during 2007 except non-taxable disability pay and
> $12,000 sick pay.
>
> Taxpayer received a W2 with $12,000 in box 1 and "Third Party Sick Pay"
> checked in box 13.
>
> Does the $12K sick pay count as earned income toward EIC?

Long-term disability benefits received prior to minimum retirement age
counts towards the EITC. Does sick pay fall into that category?

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Ernie Klein on March 30, 2008, 4:21 pm
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In article

>
> > Taxpayer had no income during 2007 except non-taxable disability pay and
> > $12,000 sick pay.
> >
> > Taxpayer received a W2 with $12,000 in box 1 and "Third Party Sick Pay"
> > checked in box 13.
> >
> > Does the $12K sick pay count as earned income toward EIC?
>
> Long-term disability benefits received prior to minimum retirement age
> counts towards the EITC. Does sick pay fall into that category?

That's kind of what I am asking.

Pub 596 (EIC) says "If you retired on disability, benefits you receive
under your employer¹s disability retirement plan are considered earned
income until you reach minimum retirement age."

That doesn't apply here because the taxpayer in question is neither
retired or permanently disabled.

Pub 15 (Employers Guide) talks about sick pay and third party sick pay
which is usually defined as an insurance to cover sickness or injury to
an employee and are to be reported and taxed as wages. There is also
disability insurance to cover long term or permanent disabilities.

Pub 596 (EIC) says "Payments you received from a disability insurance
policy that you paid the premiums for are not earned income."

Does third party sick pay == disability insurance?

The free online version of Turbotax, TaxAct, and TaxCut all give a EIC
refund of $4,716 when presented with W2 data of $12K in box 1 and "Third
Part Sick Pay" in Box 13 - at least they are consistent - my question
is are they correct?

--
-Ernie-

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by cpabakem01 on March 30, 2008, 3:17 pm
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> Taxpayer had no income during 2007 except non-taxable disability pay and
> $12,000 sick pay.  
>
> Taxpayer received a  W2 with $12,000 in box 1 and "Third Party Sick Pay"
> checked in box 13.
>
> Does the $12K sick pay count as earned income toward EIC?
>
> TurboTax sure thinks it does, even with box 13 checked, TT calculates a
> $4,700 refund (HOH), even though taxpayer paid and owed no tax for 2007.  
> I can't find anything in the Pubs that speak to sick pay counting (or
> not counting) toward EIC.  Taxpayer could sure use the extra $4.7K if
> this is correct.
>
> --
> -Ernie-
>
> --
> << ------------------------------------------------------- >>
> << The foregoing was not intended or written to be used,   >>
> << nor can it used, for the purpose of avoiding penalties  >>
> << that may be imposed upon the taxpayer.                  >>
> <<                                                         >>
> <<   The Charter and the Guidelines for submitting posts   >>
> <<  to this newsgroup as well as our anti-spamming policy  >>
> <<                  are atwww.asktax.org.                 >>
> <<         Copyright (2007) - All rights reserved.         >>
> << ------------------------------------------------------- >>



Sick pay received for time off while working (i.e., short-term
illness) shall be considered earned income when the person is still
considered an employee by the employer and the person will be
returning to work when recovered.

Milt Baker CPA


========================================= MODERATOR'S COMMENT:
Please delete unnecessary text from the prior message when responding.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Ernie Klein on March 30, 2008, 5:26 pm
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In article
cpabakem01@yahoo.com wrote:

> > Taxpayer had no income during 2007 except non-taxable disability pay and
> > $12,000 sick pay.  
> >
> > Taxpayer received a  W2 with $12,000 in box 1 and "Third Party Sick Pay"
> > checked in box 13.
> >
> > Does the $12K sick pay count as earned income toward EIC?

> Sick pay received for time off while working (i.e., short-term
> illness) shall be considered earned income when the person is still
> considered an employee by the employer and the person will be
> returning to work when recovered.

Do you have a reference in a Pub or code?

What I am concerned about is the taxpayer who was injured toward the end
of 2006 and had to have surgery. Taxpayer received sick pay for the
first part of 2007 (until it ran out), but had to have a second,
unrelated surgery (for a totally different reason) and could not return
to work at all during 2007, so the sick pay was the only taxable income.

--
-Ernie-

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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