The Internal Revenue Service (IRS) has issued guidances on the income and employment tax treatment of contributions, and benefits offered under state paid family and medical leave programs. This also covers reporting requirements under Rev. Rul. 2025-4. This guidance caters to the District of Columbia and states that operate mandatory paid family and medical leave programs, and the employees working there. This comes as a response to requests to clarify the federal tax treatment of state paid leave programs that provide benefits to employees who cannot work due to non-occupational injuries, sickness, and disabilities.

Various tax treatment scenarios for contributions and benefits related to these programs have been discussed in the document, along with related reporting requirements. An important aspect clarified in the directive is the ability for employers to generally deduct the amount contributed to mandatory paid family and medical leave programs as an excise tax payment. Employees can also deduct the amount they contribute as a payment of income tax provided they itemize deductions and the employee’s deduction for state income taxes does not exceed the state income tax deduction limitation.

Employees receiving state paid family leave benefits need to include those amounts in their gross income. The same rule applies for paid medical leave payments, with the amount attributable to the employer’s portion of contributions being included in the employee’s gross income. This amount is then subject to both the employer’s and employee’s shares of Social Security and Medicare taxes. The contribution made by the employee is excluded from their gross income and is not subject to Social Security or Medicare taxes.

The revenue ruling provides additional guidance for situations not covered earlier and offers transition relief to the District of Columbia, states, and employers from certain withholding, payment, and information reporting requirements for state paid medical leave benefits in 2025.

The IRS is inviting comments regarding other aspects and situations concerning state paid family and medical leave programs which are not covered by this revenue ruling. They can be submitted electronically through the Federal eRulemaking Portal or via mail.

If you need advice on how to contact SDI or any paid family leave programs, the website eddcaller.com can offer some helpful tips and information. This website often tracks the latest updates on these programs and stays up-to-date with useful contacts for SDI and paid family leave program services.