IRS Paid Family and Medical Leave Tax Guidance: What Employers Need to Know for 2026
Updated Aug. 6, 2026. Employers operating in states with paid family leave provisions should carefully review the guidance with their legal and/or tax advisors.
2026 update: IRS extends certain PFML transition relief
Update Dec. 22, 2025: The IRS released Notice 2026-6 on Dec. 19, 2025, which extends the transition period regarding the tax treatment of medical leave benefits a state pays to an individual through calendar year 2026. This transition relief does not apply to employer “pick-up” contributions, when an employer pays an employee’s required paid family and medical leave (PFML) contribution. These amounts must still be treated as wages and reported on Form W-2.
On Jan. 15, 2025, the IRS issued guidance via Revenue Ruling 2025-4 (RR 2025-4) on the federal income and employment tax treatment of contributions and benefits paid in certain situations under a state paid family and medical leave (SPFML) program, as well as the related reporting requirements. RR 2025-4 provides guidance to the District of Columbia and states that have mandatory PFML programs, and for employees working in and employers operating in those states.
Although the effective date of the guidance is Jan. 1, 2025, it’s important to note that RR 2025-4 stated that “calendar year 2025 will be regarded as a transition period for purposes of IRS enforcement and administration of the information reporting requirements … and this period is intended to provide States and employers time to configure their reporting and other systems and to facilitate an orderly transition to compliance” with the rules outlined in RR 2025-4.
Key takeaways
Certain transition relief has been extended through 2026: IRS Notice 2026-6 extends the transition period regarding the tax treatment of medical leave benefits a state pays to an individual through calendar year 2026.
Employer pick-up contributions remain taxable wages: When an employer voluntarily pays an employee’s required PFML contribution, the amount must be treated as wages and reported in Boxes 1, 3 and 5 of Form W-2.
Mandatory employer contributions generally are not taxable to the employee: Employer-required SPFML premium amounts are considered state taxes, and the employer has no federal information reporting requirements for those mandatory contributions.
State-paid family leave benefits are included in federal gross income: However, these benefits are not considered wages for federal employment taxes such as Social Security and Medicare.
The taxation of state-paid medical leave benefits depends on how the premiums were funded: Benefits attributable to the employer’s state-mandated contribution may be subject to federal income and employment taxes, while amounts attributable to employee contributions may be excluded from federal gross income.
The ruling does not address private or self-insured leave plans: RR 2025-4 applies to SPFML programs.
Employers should review the guidance with appropriate advisors: Employers operating in states with PFML programs should assess the ruling with their legal and/or tax advisors.
What are SPFML programs?
The Family and Medical Leave Act of 1993 (FMLA) is a federal law which generally permits eligible employees to take unpaid, job-protected leave under certain circumstances, including the need to care for an immediate family member with a serious health condition, or because of an employee’s own serious health condition. Several states have implemented and administer their own SPFML programs to provide wage replacement for employees who need to take time off from work due to their own nonoccupational injuries, illnesses or medical conditions, or to care for a family member due to the family member’s serious health condition or other specific circumstances. These states generally require that in-state employers and employees make contributions to the SPFML fund to provide these family and medical leave benefits.
How does IRS RR 2025-4 tax SPFML contributions and benefits?
In RR 2025-4, the IRS provided a number of scenarios dealing with the taxation of employer- and employee-paid SPFML premiums, the taxation of SPFML benefits received by employees, as well as the employer reporting requirements when SPFML benefits are paid to its employees.
Among other scenarios, the guidance addresses the taxation of mandatory employee contributions when voluntarily paid by the employer on behalf of the employee, which RR 2025-4 refers to as “employer pick-up of employee contributions.” Additionally, the IRS guidance differentiates the taxation of benefits received for family leave from those received for the employee’s medical leave for their own health condition.
What PFML plans does RR 2025-4 cover?
Note: RR 2025-4 only addressed SPFML programs and stated as follows:
“This revenue ruling does not address the Federal tax treatment of employers’ or employees’ contributions to private or self-insured family or medical leave plans, or the amounts received by the employees as benefits under these plans.”
Some of the highlights of RR 2025-4 are as follows:
Are employer-paid employee PFML contributions taxable?
Employee-required SPFML premium amounts paid by an employer are considered taxable income to the employee for federal income tax and employment tax, such as Social Security, regardless of state income tax treatment.
The employee-required premium amounts voluntarily paid by the employer must be included on the employee’s Form W-2 in Boxes 1, 3 and 5.
Employer-required premium amounts are considered state taxes. Such amounts are not taxable income to the employee.
The employer has no federal information reporting requirements with respect to employer-mandatory SPFML contributions.
How are state-paid family leave benefits taxed and reported?
Amounts paid to the employee under the family leave provisions of the SPFML are to be included in the employee’s federal gross income, regardless of whether the employee or employer paid the premiums.
SPFML benefits paid to the employee are not considered wages for federal employment taxes, such as Social Security and Medicare.
The state paying the benefits to the employee must file with the IRS and furnish to the employee a Form 1099.
How are state-paid medical leave benefits taxed?
Amounts paid to the employee under the medical leave provisions of the SPFML are to be included in the employee’s federal gross income unless “time off from work is necessary because of the individual’s own serious health condition, and the medical leave benefits that are paid … are, in fact paid as a result of the employee’s own serious health condition.”
Amounts paid for the employee’s own serious health condition are treated as amounts received through accident or health insurance. The taxation of such benefits is dependent on the percentage of the premium paid by the employer and employee.
Employees must include in their federal gross income any amount received attributable to the employer’s state-mandated premium percentage. For example, if an employer is required to pay 40% of the premium, then 40% of the amount received by the employee is subject to federal income and employment taxes.
Amounts received by the employee attributable to the employee contribution percentage, as well as any voluntary payment by the employer of the employee contribution required by the employee, are excluded from the employee’s federal gross income. For example, the state mandates that the employer pays 40% of the SPFML premium and the employee portion is 60%. However, the employer voluntarily pays half of the employee’s portion, totaling 30%. The employee would still only be taxed on the state employer premium-mandated amount of 40%.
FAQs
Are state-paid family leave benefits taxable at the federal level?
Yes. Amounts paid to an employee under the family leave provisions of an SPFML program are included in the employee’s federal gross income, regardless of whether the employee or employer paid the premiums. These benefits are not treated as wages for federal employment taxes such as Social Security and Medicare.
Are state-paid medical leave benefits taxable?
The tax treatment depends on the reason for the leave and the percentage of the premium paid by the employer and employee. Benefits paid because of an employee’s own serious health condition are treated as amounts received through accident or health insurance. The portion attributable to the employer’s state-mandated contribution is included in the employee’s federal gross income and may be subject to employment taxes.
Are employee PFML contributions paid by an employer taxable?
Yes. When an employer voluntarily pays an employee’s required PFML contribution, the amount is taxable income to the employee for federal income and employment tax purposes, regardless of its treatment under state income tax law.
How should employer-paid employee PFML contributions be reported?
An employer that voluntarily pays an employee’s required PFML contribution must include that amount on the employee’s Form W-2 in Boxes 1, 3 and 5.
Are mandatory employer PFML contributions taxable to employees?
No. Employer-required PFML premium amounts are considered state taxes and are not taxable income to the employee. The employer has no federal information reporting requirement for these mandatory contributions.
Who reports state-paid family leave benefits?
The state paying the family leave benefits must file a Form 1099 with the IRS and furnish the form to the employee.
What PFML transition relief applies in 2026?
IRS Notice 2026-6 extends the transition period through calendar year 2026 regarding the tax treatment of medical leave benefits a state pays to an individual. The transition relief does not apply to employer pick-up contributions.
Does RR 2025-4 apply to private or self-insured leave plans?
No. RR 2025-4 does not address employers’ or employees’ contributions to private or self-insured family or medical leave plans, or the benefits employees receive under those plans.
What should employers do in response to RR 2025-4?
Employers operating in states with PFML programs should review RR 2025-4 and Notice 2026-6 with their legal and/or tax advisors.
What should employers do about the IRS PFML tax guidance?
Employers operating in states with paid family leave provisions should carefully review RR 2025-4 with their legal and/or tax advisors. Useful summaries of the guidance are contained on pages 29 and 30.
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Updated Aug. 6, 2026
