IRS Issues Guidance on Federal Tax Treatment of State Paid Family and Medical Leave Contributions and Benefits
The Internal Revenue Service (IRS) has released new guidance on the federal income and employment tax treatment of contributions and benefits paid under state paid family and medical leave (PFML) statutes. This guidance also outlines the related reporting requirements for employers and employees . There was no published guidance that addressed the taxation or reporting requirements of state PFML statutes before the publishing of Revenue Ruling 2025-4 . Quick Hits The IRS has clarified the tax treatment of mandatory employee and employer contributions to state PFML funds, as well as optional employer payment of mandatory employee contributions. Employers c an deduct their contributions as business expenses, while employees may deduct their contributions as state income taxes if they itemize deductions and otherwise do not exceed the SALT deduction cap . Amounts paid to employees as family leave benefits are included in the employee’s gross income but are not wages for federa...