Non-Taxable Sick Pay on W-2: Code J, FICA, and Filing

Non-taxable sick pay on a W-2 shows up in Box 12 with Code J. The amount is excluded from Box 1 wages, so it does not increase your tax bill, but the IRS still requires it to be disclosed on the form so the numbers reconcile. Code J specifically identifies sick pay from a third-party plan that is not includible in income because you paid the insurance premiums yourself with after-tax dollars.

Reading Code J and the Rest of Your W-2

When sick pay qualifies as non-taxable, your W-2 handles it in a specific pattern. Knowing where each piece lands lets you confirm the form is right before you file.

Box 1 (Wages, tips, other compensation). The non-taxable sick pay is excluded. Box 1 reflects only your taxable wages.
Box 3 (Social Security wages) and Box 5 (Medicare wages). Non-taxable sick pay received after the six-month FICA window has closed is excluded here as well. Payments received during that six-month window do appear in these boxes, because FICA still applied at the time.
Box 12, Code J. The full amount of non-taxable sick pay is reported here. This is the primary disclosure. Code J tells the IRS why Box 1 is lower than the total payments that reached you during the year.¹
Box 13 (Third-party sick pay). This box is checked when a third-party payer files the W-2 for an insured employee, or when an employer is reporting sick pay payments made by a third party.¹

If you received sick pay but see no Code J entry and no third-party sick pay checkbox, the payer is treating the benefit as taxable. That may be correct, or it may be an error worth checking against who actually funded your premiums.

Why Your Sick Pay Was Treated as Non-Taxable

The classification turns almost entirely on who paid the premiums for the underlying policy. If you paid them with after-tax dollars, benefits are generally excluded from gross income under Section 104(a)(3) of the Internal Revenue Code.² You already paid tax on the money used to buy the coverage, so the benefits are treated as a return on that investment rather than new income.

If your employer paid the premiums, the benefits are taxable and will be included in Box 1 rather than reported with Code J. Where premiums were split, only the portion of benefits tied to your own after-tax contributions is non-taxable; the portion tied to the employer’s contribution is taxable.³

One wrinkle catches many employees off guard. If disability insurance premiums were paid through a Section 125 cafeteria plan on a pre-tax basis, the IRS treats those premiums as if your employer paid them, even though the money came out of your paycheck. The resulting benefits are fully taxable and will not appear with Code J.³ To preserve non-taxable status under a cafeteria plan, you must have irrevocably elected before the start of the plan year to have the premiums included in your taxable income.

Sick pay your employer hands you directly from its own payroll, rather than through an insurance policy, is always fully taxable. It is treated like regular wages and runs through Box 1 with no Code J entry.

Why FICA May Still Show Up on Part of It

Non-taxable sick pay is not immediately free of Social Security and Medicare taxes. Third-party sick pay remains subject to FICA for the first six calendar months after the last calendar month in which you worked. Only after that window closes do payments become exempt from Social Security, Medicare, and Federal Unemployment Tax as well.⁴

The IRS counts full calendar months, not days. If your last day of work was December 5, 2025, your last calendar month of work is December 2025. The six months run January through June 2026, and any sick pay received after June 30, 2026, is free of FICA.⁴

Returning to work for even a single day resets the clock. Using the IRS’s own example, one day worked on February 6, 2026, makes February the new last month, and FICA exemption would not begin until after August 31, 2026.⁴

This is why non-taxable sick pay can still appear in Boxes 3 and 5 for part of the year. The amount in Code J covers the whole non-taxable total; the FICA boxes only pick up the portion paid during the six-month window.

What to Do With Code J on Your Tax Return

Nothing, in most cases. Because non-taxable sick pay is already excluded from Box 1, the Box 1 figure flows straight to the wages line on Form 1040 without any subtraction on your end. The Code J amount is informational and does not get reported anywhere else on the return.⁵

Taxable sick pay is already baked into Box 1 and gets reported with your other wages. Either way, you do not add the Code J figure a second time.

Keep any statements from the third-party payer alongside your W-2 and compare them. If the totals do not match, or Code J is missing when you believe your sick pay should be non-taxable, raise it with your employer or the payer before you file.

If the W-2 Reports Sick Pay Incorrectly

Common errors include non-taxable sick pay mistakenly included in Box 1, a missing Code J, or the Box 13 checkbox left unchecked. The fix is a corrected Form W-2c filed by your employer or the third-party payer, with a transmittal Form W-3c. The IRS and Social Security Administration instruct filers to issue corrections as soon as possible after discovering the mistake and to provide you with a copy promptly.⁶

Do not file your return using numbers you know are wrong. If a corrected W-2 is not going to arrive before the filing deadline, you can file using the correct figures and attach a statement explaining the discrepancy. Getting the W-2c issued still matters, because the Social Security Administration uses the original filing for your earnings record and Social Security credits.

State Paid Leave Benefits Are a Separate Story

If part of your sick pay came from a state paid family and medical leave program rather than a private insurance policy, do not expect it to appear the same way. The IRS concluded in Revenue Ruling 2025-4 that the portion of state medical leave benefits tied to employer contributions counts as gross income and is treated as third-party sick pay for federal tax purposes.⁷

The IRS extended a transition period through all of calendar year 2026 for the employer-contribution portion of these benefits. During the transition, states and employers are not required to follow the income tax withholding and reporting rules that normally apply to third-party sick pay, and they will not face penalties for not doing so.⁷ Your 2026 W-2 may not reflect these state-program payments at all, even if they are technically taxable. The transition relief does not cover amounts an employer voluntarily picks up on your behalf for your share of the state program contribution; those amounts must still be reported as wages on your W-2.

Some state programs report benefits on Form 1099-G rather than a W-2. California’s Family Temporary Disability Insurance payments, for instance, are reported as unemployment compensation in Box 1 of Form 1099-G.⁸ Check both your W-2s and any 1099-G forms before you file so you have the full picture.

1
Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
2
Office of the Law Revision Counsel. 26 U.S. Code 104 – Compensation for Injuries or Sickness
3
Internal Revenue Service. Life Insurance and Disability Insurance Proceeds
4
Internal Revenue Service. Publication 15-A, Employer’s Supplemental Tax Guide
5
Internal Revenue Service. About Form 1040, U.S. Individual Income Tax Return
6
Social Security Administration. Helpful Hints to Forms W-2c/W-3c Filing
7
Internal Revenue Service. Extension of Transition Period to Calendar Year 2026 for Certain Requirements in Revenue Ruling 2025-4
8
Internal Revenue Service. Instructions for Form 1099-G