Rev. Proc. 56-17

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to set forth the conditions under which sick and injury payments excludable from gross income under section 105(d) of the Internal Revenue Code of 1954 may be shown separately on Form W-2, Withholding Tax Statement, reporting wages paid after December 31, 1955.

SEC. 2. BACKGROUND.

Section 31.3401(a)-1 of the Employment Tax Regulations is applicable to withholding of income tax on sick and injury payments made after December 31, 1955, under wage continuation plans. That section provides that all sick and injury payments excludable from gross income under section 105(d) of the Code, which are made directly by the employer, must be included in the amount of total wages reported on Form W-2, but the section is silent with respect to any mandatory or permissive rules for showing separately such excludable amounts on Form W-2. A number of inquiries have been received whether these excludable amounts may be reported separately on Form W-2.

SEC. 3. PROCEDURE.

Employers may show separately on Form W-2 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 cases, 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. If these excludable amounts are reported separately on Form W-2, the entry should be placed under a special caption, "Excludable Sick Pay.' It should be clearly understood that, whether or not a separate entry is made of the amount excludable from gross income under section 105(d) of the Code, the employer must include this amount in the total wages reported on Form W-2.

SEC. 4. EMPLOYEE'S STATEMENT FOR INCOME TAX RETURN.

The fact that "Excludable Sick Pay" (or a similar entry) 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 hospitalized.

SEC. 5. EFFECTIVE DATE.

This Revenue Procedure is effective immediately.