Is Paid Family Leave Taxable?

What are the differences between paid and unpaid family leave?

While there is no federal law requiring employers to pay for family leave, certain employers do have to follow the Family and Medical Leave Act (FMLA).  From these covered employers, employers may voluntarily offer this leave as of January 1, 2021 after an employee takes leave for 10 days unpaid for up to 10 weeks for reasons related to Covid 19.

Employees can use their unpaid leave for:

• The birth, adoption, or foster care placement of a child
• The care of a spouse, child, or parent with a serious health condition
• A personal serious health condition that makes the employee unable to perform their job or telwork
• A situation that requires attention because of the military deployment of a spouse, child, or parent

If an employer chooses to offer PFL, they will be entitled to claim a fully refundable tax credit up to 100% of the family leave wages and allocatable qualified health plan expenses and the eligible share of medicare tax on the qualified family leave wages it pays.

Under the expanded FMLA, the eligible employer pays the employee qualified family leave wages for at least 2/3 of their regular wages, multiplied by the number of hours the employee would have worked, not to exceed $200/day and $10,000 in total for the calendar year.

Employee PFL contributions are post-tax deductions, which means the contributions made into the state fund are subject to taxes.

If an employee takes PFL, the wages they receive are subject to federal income tax, but not Social Security and Medicare taxes, or federal unemployment tax. The employee will receive a 1099-G, which will need to be added to their annual 1040 if the employee claims for the state PFL benefits.

The above information is of a general nature only and should not be relied upon for specific situations. Click here for additional tax services information.

Call Marlies Y Hendricks CPA PLLC at either 716-694-3500 or 910-769-8730.