I was on short term disability for 1 week in 2008, for which I received STD pay from a private insurance. The premiums for this are paid by my employer and are available as a benefit to us with no personal contribution. I received a W-2 from the insurance company, where-in I see they have deducted medicare tax, but not social security and federal income tax.

My question
1) Is the STD pay to be included as part of taxable income and do I also have to pay Social security tax on it?
2) If I need to pay social security tax, how do I report and pay it? Will the regular 1040(1040A) suffice? Or do I need a separate form attached for it. Also is there a employer contirbution to social security taxes too? If so will I have to pay for that too in this case. i.e at what rate should I compute the Social security tax.

It is reported on W2, so paying FICA taxes is not your responsibility. You will only report this as income.

Thanks MukatA! So you're saying I simply pay federal income tax on it? Not sure why the cut medicare from it then? Just one clarification, the insurance company had asked me if I wanted federal/state tax withheld when I had filed my claim. I had said no, because at that time from what I had figured out, I didn't need to pay taxes on it. But later I read somewhere, that if the company is providing it as a benefit, and I'm not paying the premium for it, I would have to pay taxes. Since they cut medicare, I was thinking I'd have to pay social security too.

As MukatA noted, the withholding of Social Security and Medicare taxes is NOT an issue for you. If the taxes should have been withheld, the IRS will address that with the insurance company, not you.

So all you need do is report the federal income tax on your return.

Thanks ATL.

Glad to help!

Needed one more clarifiaction. The W2 I received from the insurance company has an entry in box 14 as 100%. How is that to be treated? I'm filing using Turbo-Tax, do I report it as SDI or something or just leave it as OTHER. Also should I quote the amount in box 1 here, or report it as "100%", the same as it show up on my W2 received from the insurance company. Thanks in advance.

You can ignore the Box 14 entry.