Rev. Proc. 73-19

Section 1. Purpose

The purpose of this Revenue Procedure is to set forth conditions under which Form W-2, Wage and Tax Statement, may be attached by the taxpayer to his individual income tax return in support of an exclusion of sick pay, in lieu of any other statement.

Sec. 2. Background

.01 Section 31.3401(a)-1(b)(8)(ii)(b) of Employment Tax Regulations provides that withholding is not required with respect to any or all employees upon the amount of any wage continuation payment made to an employee directly by the employer for whom he performs services to the extent that such payment is excludable from the gross income of the employee under section 105(d) of the Internal Revenue Code of 1954, provided the employer maintains certain records specified in the regulations.

.02 In Rev. Proc. 56-17, 1956-1 C.B. 1042, conditions are set forth under which employers may show separately on Form W-2, Withholding Tax Statement, the amount of any sick or injury payments excludable from gross income under section 105(d) of the Code which are made directly by them. However, in such case, regardless of whether or not tax was withheld on such excludable amounts, employers must keep the records described by subdivisions (1) and (2) of section 31.3401(a)-1(b)(8)(ii)(b) of the regulations. It is further stated in Rev. Proc. 56-17 that the fact that excludable sick pay may be reported separately on Form W-2 will not relieve the employee of the necessity of submitting the statement which is required to be attached to his individual income tax return showing the computation of excludable sick pay and indicating the period or periods of absence, nature of illness or injury, and whether he was hospitalized.

.03 Employers having in effect wage continuation plans have requested permission to issue to their employees Form W-2 which reflect excludable sick pay and which such employees could attach to their individual income tax returns in lieu of the presently prescribed statement. These employers point out that the determinations made by them of excludable sick pay are fully supported by the type of records specified in subdivision (1) and (2) of section 31.3401(a)-1(b)(8)(ii)(b) of the regulations. It was suggested that adoption of such a procedure would be mutually advantageous to both the employers and the Service.

Sec. 3. Procedure

.01 Employers having wage continuation plans who keep the records required by section 31.3401(a)-1(b)(8)(ii)(b) of the regulations may report excludable sick pay on Wage and Tax Statement, Form W-2, which, when attached to the employee's individual tax return, will satisfy the present requirements for a statement supporting the sick pay exclusion, provided the employer also complies with the following:

(a) Assumes full responsibility for the accuracy of the sick pay figures furnished to its employees, and keeps the payroll records supporting such figures available for inspection by Internal Revenue Service personnel.

(b) Lists the excludable sick pay in a separate block provided on the Form W-2 furnished to the employees.

Sec. 4. Effect on Other Documents

.01 This Revenue Procedure modifies Rev. Proc. 56-17 insofar as it relates to the statement to be furnished by employees in support of the sick pay exclusion.

.02 Rev. Proc. 57-1, 1957-1 C.B. 721, which relates to the conditions under which the statement referred to in Rev. Proc. 56-17 may be attached to a return, is superseded.