Is sick pay taxed?

Yes. Statutory Sick Pay and the occupational sick pay paid by NHS employers, schools and councils are both taxable, and both go through payroll with your usual tax code just like normal wages. National Insurance is due on them too, but only on the part above the Primary Threshold of £242 a week (£1,048 a month). In 2026/27 the maximum SSP rate of £123.25 a week is below that threshold, so someone living on SSP alone pays no employee National Insurance and, often, very little tax.

Statutory Sick Pay in 2026/27

SSP is £123.25 a week or 80 per cent of your average weekly earnings, whichever is lower, for up to 28 weeks. Since 6 April 2026 it is paid from the first day of sickness, with no waiting days and no lower earnings limit, so part-time staff on low hours now qualify. You need to be an employee, have done some work and be ill for at least one full working day.

Your employer pays SSP through payroll, taxes it under PAYE exactly as it taxes salary, and includes it on your P60. Statutory Sick Pay covers eligibility and how to claim it.

Occupational sick pay

Most public sector staff get more than SSP. The NHS Agenda for Change scheme and the local government Green Book both give full pay and then half pay, based on length of service; after five years that is six months of each. Teachers under the Burgundy Book get up to 100 working days on full pay and 100 on half pay from their fourth year. SSP is included within these payments, not paid on top.

All of it is taxed as ordinary pay. When you move from full pay to half pay, your tax code does not change; the tax simply falls because your pay has. NHS sick pay, teacher sick pay and council sick pay set out each scheme.

Why half pay can mean a refund

On a normal cumulative code, payroll works out your tax on your pay for the year to date. When your monthly pay drops, the allowance you have built up stays the same, so the tax due falls more sharply than your pay. If one month’s pay falls below £1,048, the tax already paid that year can start to come back to you through payroll.

Say you are a healthcare assistant in England paid £2,100 a month, and from month 7 (October) your sick pay drops to £600 a month. Under 1257L, the tax in October is nil and payroll returns some of the tax you paid earlier in the year, because your pay to date is now lower compared with your allowance to date. On a non-cumulative code (ending M1 or W1) this does not happen; see Month 1 and Week 1 tax codes.

If all pay stops, for example when sick pay is exhausted, payroll may not run for you at all. Any overpaid tax then comes back once the year has been reconciled or when you claim it; claiming a tax refund explains how.

National Insurance and student loans on sick pay

Employee National Insurance (category A) is 8 per cent of pay between £242 and £967 a week, and 2 per cent above that. Each pay period is assessed separately. A month on full sick pay attracts the same NI as a normal month. A month on half pay attracts less, and a month on SSP alone attracts none, since £123.25 a week is below £242.

Student loan deductions work the same way, with per-period thresholds. On half pay you may drop below your plan’s monthly threshold and stop repaying until full pay resumes.

Pension while you are off sick

In the NHS, Teachers’, LGPS and Civil Service schemes, member contributions are usually taken from whatever pay you receive while off sick, at your normal tier rate, so they shrink when your pay does. How the scheme treats periods on reduced or no pay for building up pension varies between schemes, so ask your scheme administrator how yours handles it. Where an illness is long-term, ill-health retirement is a separate route with its own scheme rules.

What is not taxed

Some payments linked to illness are not earnings. State benefits such as Personal Independence Payment are not taxable. Payments from an income protection policy you pay for yourself are generally treated differently from employer-funded ones. If you receive anything other than sick pay from your employer and are unsure how it is taxed, HMRC can confirm the position for you.