Disability benefit payments are subject to federal income tax. However, Concordia Plan Services is not required to nor does it withhold federal income tax from a lay worker’s disability payments unless the worker has provided the Concordia Plan Services office with a completed Federal W-4S, Request for Federal Income Tax Withholding from Sick Pay. This form is available from the Concordia Plan Services office, or it can be downloaded from the IRS website www.irs.gov/pub/irs-pdf/fw4s.pdf.
Disability benefits paid by the Concordia Disability and Survivor Plan to a Minister of the Gospel will be designated as “housing allowance.” This means that a disabled minister can exclude up to 100 percent of the disability benefits received from federal taxable income, to the extent that it is used for qualified expenses. Qualified expenses include rent (if housing is rented), or principal and interest payments and real estate taxes (if a home is owned), as well as expenses for utilities, routine repair and maintenance, capital improvements, furnishings, and garage rent. The excluded expenses may not exceed the annual fair rental value of the home, furnishings, plus utilities.
Any disability benefits you receive during the first six months following the last calendar month in which you worked are also subject to Social Security and Medicare taxes. After that, your disability benefits are exempt from Social Security and Medicare taxes.
- With respect to those workers who are not considered self-employed for Social Security purposes, Concordia Plan Services will withhold the worker’s portion of Social Security and Medicare taxes from each disability payment made during the six month period described above. CDSP will also pay the required employer portion of Social Security and Medicare taxes on your behalf.
- Those workers considered self-employed for Social Security purposes will be required to pay self-employment taxes for the disability benefits received during the first six months following the last calendar month in which they worked.
If you are not a rostered, ordained, or commissioned Minister of Religion, Concordia Plan Services will report the disability benefits to the IRS each year and will issue you a W-2 form by January 31 reporting the disability benefits paid during the prior year. If you are a rostered, ordained, or commissioned Minister of Religion, Concordia Plan Services will send you a letter by January 31 each year reporting the total amount of disability benefits paid during the prior year, as well as information regarding eligibility on the housing allowance.
Federal tax laws pertaining to disability payments (or “sick pay”) are different than those applicable to regular wage payments. Therefore, the employer should be aware of the following tax rules should a worker become disable
Sick pay is subject to federal income tax. However, Concordia Plan Services, as a third-party payer of such benefits, is neither required to, nor does Concordia Plan Services withhold federal income tax from the worker’s disability payments unless the worker has provided a Form W-4S, “Request for Federal Income Tax Withholding from Sick Pay.” Concordia Plan Services automatically sends the eligible worker a form to complete when a disability begins. Otherwise, the form can be found at the IRS website at www.irs.gov/pub/irs-pdf/fw4s.pdf.
Please note that rostered, self-employed workers are not eligible for federal withholding through Concordia Plan Services.