Short answer: Usually yes, on the taxable part, but Social Security, Medicare and FUTA taxes do not apply to sick pay paid more than 6 calendar months after the last calendar month the employee worked. The part that comes from the employee’s own after-tax premium is not subject to them.
IRS Publication 15-A treats disability payments from an insurer as sick pay. The taxable part is subject to Social Security, Medicare and FUTA taxes, with two limits:
- The 6-month rule. These taxes do not apply to sick pay paid more than 6 calendar months after the last calendar month in which the employee worked. Working even one day restarts the count.
- Employee contributions. Payments that come from the employee’s own after-tax premium are not subject to these taxes.
That is why STD checks usually carry FICA and checks deep into an LTD claim usually do not. Who deposits and reports the employer share depends on whether the carrier transfers that liability back to the employer, which the carrier’s sick pay notice should spell out.