In long-awaited guidance, the IRS issued a Revenue Ruling (Ruling) addressing the Federal income and employment tax treatment of contributions and benefits under a state PFML program and related reporting requirements. The guidance provides detailed explanations and examples to address a variety of scenarios. It should be noted that the ruling specifically states that it does not address the Federal tax treatment of employers’ or employees’ contributions to private or self-insured PFML programs or the amounts received by the employees as benefits under the plans.
Key holdings of the Ruling include:
- An employee who receives state paid family leave payments must include those amounts in their gross income.
- An employee who receives state paid medical leave payments must include the amount attributable to the employer portion of contributions in the employee’s gross income. This amount is subject both to the employer’s and employee’s shares of Social Security and Medicare taxes. The amount attributable to the employee’s portion of the contributions is excluded from the employee’s gross income, and not subject to Social Security or Medicare taxes.
- Employees can deduct their contributions as income tax if they itemize and remain within limits set by their state.
- Employers may deduct payments made toward mandatory state leave programs as an excise tax.
Check out the full Ruling to read more and review the many scenarios provided.
How FINEOS helps employers with compliance
The FINEOS Integrated Disability and Absence Management (IDAM) solution helps employers simplify the complexity of paid and unpaid leave. Our expert knowledge helps negotiate the regulatory landscape to remain compliant with federal, state and municipal regulations. Take advantage of more FINEOS resources about leave management.
