The Internal Revenue Service (IRS) has issued new guidance on the income and employment tax treatment of contributions and benefits under state paid family and medical leave (PFML) statutes. This guidance, outlined in Revenue Ruling 2025-4, includes information on reporting requirements for employers and employees. Up until this point, there was no guidance on the taxation or reporting requirements of state PFML statutes.

PFML statutes have been introduced in many states to provide wage replacement to employees during periods of leave due to nonoccupational injuries, illnesses, or medical conditions, or to provide care for a family member. These leaves often require contributions from both the employer and the employee.

Mandatory employee contributions are treated as state income taxes and are deductible. These amounts get included in the employee’s gross income and wages for federal employment tax purposes. Employer contributions are treated as state excise taxes and are deductible by the employer. Any voluntary contributions by the employer are considered additional compensation to the employee and are therefore included in their gross income and wages for federal employment tax purposes.

Family leave benefits paid to employees are regarded as gross income, but not wages for federal employment tax purposes. These benefits must be reported on Form 1099 if they exceed $600 in a taxable year. Medical leave benefits, if they relate to the employee’s serious health condition, are excluded from the employee’s gross income. Any amounts attributable to employer’s contribution are however, included in employee’s gross income and considered as wages for federal employment tax purposes.

The IRS has designated 2025 as a transition period to enforce and administrate the information reporting requirements and rules mentioned in the guidance. This gives states and employers enough time to adapt their reporting and other systems in line with the new rules.

Navigating through these complex PFML statues can be difficult for employees and employers alike. If you are in California and need to connect with Paid Family Leave, there is help available. Log on to eddcaller.com for all the information you need on how to get a hold of Paid Family Leave. Through this simple and straightforward website, you can find all the resources you need to get your questions answered in a timely manner.