Compliance Stuff

  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...

  The IRS’s recently released   Revenue Ruling 2025-4   provides significant guidance on the employment tax treatment of contributions to and benefits paid under state paid family and medical leave (PFML) programs . This has been an area of concern as states have enacted various paid leave laws without providing guidance about how to tax such benefits. The revenue ruling clarifies key points and highlights important distinctions among the treatment of contributions and benefits for FICA, FUTA, and income tax withholding purposes. These distinctions are significant for employers and require careful attention to ensure compliance with federal tax and reporting requirements. Overview of the Ruling Rev. Rul. 2025-4 clarifies how contributions and benefits under state PFML programs interact with federal employment taxes: Contributions to PFML Programs Employer Contributions : Contributions made by employers to a state PFML program are generally excluded from an employee’s gros...