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). Businesses with at least 50 employees are required to offer unpaid FMLA leave. From these covered employers, employees will receive up to 12 weeks of unpaid leave. Employees can take leave after working for a business after 12 months. 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
- A situation that requires attention because of the military deployment of a spouse, child, or parent
Currently, there are only six states and the District of Columbia that offer paid family leave (PFL) programs. The six states include: California, Massachusetts, New Jersey, New York, Rhode Island, and Washington. The rules for paid leave differ from state to state. One of the main differences between paid and unpaid leave is that PFL requires employers and/or employees to pay into a state fund. When an employee needs to take paid leave, they will receive a portion of their regular wages. Even if a business is not located in one of the states that offers PFL, employers can still choose to offer it to their employees. If an employer chooses to offer PFL, they will be entitled to a tax credit.
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.
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