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Question
Has there been an update on the tax treatment of Paid Family and Medical Leave (PFML) benefits?
Answer
Yes, the Department of Family and Medical Leave (DFML) recently updated its website to include Internal Revenue Service (IRS) guidance on the taxability of PFML benefits. The guidance, known as Revenue Ruling 2025-4, also addresses the tax treatment of employer and employee contributions.
The IRS has designated 2025 as a transition year for employers to adjust their payroll and tax reporting practices to comply with the ruling. As of January 1, 2026, employers must fully comply with the new ruling.
In general, PFML benefits are considered taxable income for employees. However, the IRS treats family leave and medical leave benefits differently, as detailed in the following table from the Ruling:
Summary of the Federal Income-Tax Consequences of Family and Medical Leave Benefits Paid by State Family and Medical Leave Programs
| Type of benefits | Amount attributable to employer contribution | Amount attributable to employee contribution |
| Family leave benefits | Employee must include the amount attributable to the employer contribution in employee’s Federal gross income (employer contribution not previously included in employee’s Federal gross income). This amount is not wages.
State must file with the IRS and furnish to employee a Form 1099 to report these payments. |
Employee must include the amount attributable to the employee contribution, as well as to any employer pick-up of the employee contribution, in employee’s Federal gross income. This amount is not wages.
State must file with the IRS and furnish to employee a Form 1099 to report these payments. |
| Medical leave benefits | Employee must include the amount attributable to the employer contribution in employee’s Federal gross income (employer contribution not previously included in employee’s Federal gross income) except as otherwise provided in § 105. This amount is wages.
The sick pay reporting rules apply to the medical leave benefits attributable to employer contributions. These payments are third-party payments (by a party that is not an agent of the employer) of sick pay. |
The amount attributable to the employee contribution, as well as to any employer pick-up of the employee contribution, are excluded from employee’s Federal gross income. |
What Employers Should Do
Employers should consult their tax professionals to prepare for this complex transition. As indicated above, Ruling 2025-4 also addresses tax treatment of employer and employee contributions, which will be addressed in a future HR Edge article.
If AIM members have questions, they may call the AIM Helpline at 800-470-6277, or email Helpline@aimnet.org.
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