Phillips has endured a difficult time since joining City for £42M from Leeds United back in 2022 and he's made just 16 Premier League appearances in the following four campaigns under Pep Guardiola.
The 30-year-old has previously been sent out on loan to West Ham United, Ipswich Town and Sheffield United - with the Blades now hoping to tie up a deal to bring him in for the 2026/27 campaign.
Phillips had a mixed time at Bramall Lane last season, making just three appearances, as he was sent off in his last game for the club in the Steel City derby win over Sheffield Wednesday.
Despite those issues, Chris Wilder remains keen to bring him back to the club, and City are happy to sanction another loan.
As part of the negotiations, City could look to insert a purchase clause into the deal, as Phillips remains under contract at the Etihad Stadium until 2028 - and his route back into Maresca's plans looks non-existent at this stage.