States Request IRS Guidance on Taxability of Paid Family and Medical Leave Contributions, Benefits

Recently, the governors from nine states – Colorado, Connecticut, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, and Washington – wrote a letter to the IRS Commissioner asking for guidance regarding the federal tax treatment of premiums (sometimes referred to as employer and/or employee contributions) and benefits under state paid family and medical leave (PFML) programs [Letter to IRS Commissioner Daniel Werfel, 1-18-24; Office of Colorado Governor Jared Polis, News Release, 1-22-24].

Impact on Payroll Professionals

The letter describes the uncertainty employers face regarding the proper calculation of PFML payroll taxes and the reporting of premiums withheld by employers from employees. States do not have clarity on whether Forms 1099 should be issued.    

Employee Personal Income Tax Questions, Concerns

The letter asks for guidance on whether taxability hinges on the taxpayer (employee) itemizing deductions and claiming the state and local tax (SALT) deduction, and what to do if the amount of the PFML benefits exceed the amount of premiums paid.

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Lia Coniglio, Esq., is Managing Editor of PayState Update and Senior Manager of State Payroll Information Resources for PayrollOrg.