Rev. Proc. 57-1

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to set forth the conditions under which an employer-issued statement, showing an employee's sick pay excludable from gross income under section 105(d) of the Internal Revenue Code of 1954, may be attached by the employee to his individual income tax return in satisfaction of the Internal Revenue Service's instructions requiring the employee to attach a statement showing a computation of excludable sick pay and indicating the periods of absence, nature of illness or injury, and whether he was hospitalized.

SEC. 2. BACKGROUND.

.01 Section 31.3401(a)-1(b)(8)(ii)(b) of the 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 Code, provided the employer maintains certain records specified in the regulations.

.02 In Revenue Procedure 56-17, C. B. 1956-1, 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 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 Employment Tax Regulations. It is further stated therein 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 statements of excludable sick pay 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 subdivisions (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 employer and the Service.

SEC. 3. PROCEDURE.

.01 Employers having wage continuation plans who keep the records required by section 31.3401(a)-1(8)(ii)(b) of the Regulations may issue statements to their employees of excludable sick pay which, when attached to the employees' individual income tax returns, will satisfy the present requirements for a statement supporting the sick pay exclusion, provided the employer also complies with the following:

1. 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;

2. Lists the excludable sick pay in a separate block on the Forms W-2 furnished to the employees; (Listing on Forms W-2 for the year 1956 may be shown separately. See Rev. Proc. 56-17, supra. The Form W-2 for 1957 will specifically provide a separate block for this purpose adjacent to the block for total wages paid.) and

3. Executes and issues to each employee involved a statement in substantially the forms illustrated in subsection .02.

.02 Form of statement to be issued by employers.

              STATEMENT TO SUPPORT EXCLUDABLE SICK PAY

SEC. 4. EFFECT ON OTHER DOCUMENTS.

This Revenue Procedure modifies Revenue Procedure 56-17, C. B. 1956-1, 1042, insofar as it relates to the statement to be furnished by employees in support of the sick pay exclusion.