IRS Issues Guidance for States with PFML Programs

The IRS has issued Revenue Ruling 2025-4, providing long-awaited guidance on the federal tax treatment of contributions and benefits under state paid family and medical leave (PFML) programs. The ruling addresses how federal income and employment tax rules apply to the programs and includes guidance on related reporting requirements. Currently, 13 states and the District of Columbia have enacted mandatory PFML programs. 

Whether the tax/premiums are paid by the employee or employer varies by state. Some states split the tax/premiums between the employer and employee. In most of the states, the employer is allowed to pay up to the full amount of the premium. There is a Federal tax impact when the employer pays the premiums. For example, if the employer pays 50% of the premium/tax, then 50% of the benefits paid to the employee are taxable. This is something that employers should consider when they contemplate paying premiums on behalf of their employees. 

Note that state tax treatment of contributions and benefits varies by state. Employers should refer to the state agencies for guidance on state tax treatment of contributions and benefits.