An employee who receives sick pay is taxed on it. It is treated the same as other taxable compensation, which means it is taxable for income tax purposes and subject to FICA.
Employers who give sick pay to an employee can deduct the payment. Again, it is merely another form of taxable compensation.
This is generally adjusted gross income increased by certain items such as tax-free foreign earned income. MAGI usually is used to determine phaseouts of certain deductions and credits.