IRS Extends Transitional Relief for Certain PFML Tax Obligations

The IRS has extended transition relief from enforcement of some paid family and medical leave (PFML) state and employer tax obligations under Revenue Ruling 2025-4. The extension,  contained in the recently published IRS Notice 2026-6, lasts through calendar year 2026 and applies to the portion of medical leave benefits a state pays to an individual that is attributable to employer contributions. 

Revenue Ruling 2025-4 - issued last year - addressed the tax treatment of state PFML contributions and benefits. Part of the ruling held that amounts paid to an employee by a state as medical leave benefits attributable to the employer’s contribution pursuant to a state’s PFML statute are third-party payments of sick pay and should be included in an employee’s gross income as wages for federal employment tax purposes. The ruling advised that states and employers must comply with the employment tax and reporting requirements that apply to such payments, but provided transition relief from enforcement for calendar year 2025.  

Notice 2026-6 provides employers with an additional year - until 2027 - to comply with some of the tax obligations in Revenue Ruling 2025-4.  Specifically, employers will not be penalized for failing to file a correct information return or furnish a correct payee statement regarding the above-mentioned benefits, nor will they be required to withhold or pay associated taxes. 

The extension does not apply to “employer pickups,” which are any portion of an employee’s PFML contribution that an employer pays voluntarily. These voluntary payments must be treated as wages for federal employment tax purposes and reported on the employee’s Form W-2.