Alyssa Lane
Paid family leave insurance is a benefit that provides partial income replacement for individuals who need to take time off work to care for a family member or bond with a new child. This type of insurance can be provided by an employer, purchased individually, or offered through a government program. When it comes to reporting family leave insurance on your taxes, there are a few things to consider. Firstly, if you received family leave benefits, you may need to report them as income on your tax return. Additionally, if you paid premiums for family leave insurance, you may be able to claim those premiums as a tax deduction or credit. The specific rules and requirements for reporting family leave insurance on your taxes can vary depending on your location and individual circumstances, so it is always a good idea to consult with a tax professional or refer to the relevant government websites for the most accurate and up-to-date information.
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What You'll Learn
Paid family leave and taxes
In the United States, the Internal Revenue Service (IRS) has provided guidance on the federal tax treatment of state-paid family and medical leave contributions and benefits. This includes clarification on the tax implications for both employers and employees.
Paid family leave for employers:
Employers can receive a tax credit for providing paid family and medical leave to their employees. This credit, known as the Section 45S Employer Credit, is a percentage of the wages paid to qualifying employees while on family and medical leave for up to 12 weeks per taxable year. The minimum percentage is 12.5% and can increase up to a maximum of 25%. To be eligible for this credit, employers must have a written policy in place that meets certain requirements, including providing at least two weeks of paid family and medical leave annually to full-time employees (prorated for part-time employees). The credit is effective for wages paid between January 1, 2018, and December 31, 2025, and employers can only claim it for leave taken after the written leave policy is implemented.
Additionally, employers can deduct their contributions to state Paid Family and Medical Leave (PFML) funds as business expenses. If an employer voluntarily pays part of an employee's required contribution, this amount is treated as additional compensation to the employee and is included in the employee's gross income and wages for federal employment tax purposes.
Paid family leave for employees:
Amounts received as family leave benefits are included in the employee's gross income but are not considered wages for federal employment tax purposes. However, medical leave benefits are only taxable if they align with Internal Revenue Code § 104(a)(3), which states that they are taxable if the contributions were included in the employee's gross income or paid by the employee.
Mandatory employee contributions withheld from wages are generally treated as state income taxes and can be deducted if the employee itemizes deductions and does not exceed certain limits, such as the state and local taxes (SALT) deduction cap.
When it comes to reporting paid family leave on tax returns, employees should expect to receive Form 1099-G from the relevant state agency, which will include information such as the name, Social Security number, address, and the amount of family leave benefits received. This information is also submitted to the IRS, and employees will need to include it when filing their tax returns.
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Reporting family leave insurance
In Washington, if you have received benefits from more than one program, like Paid Leave and Unemployment Insurance, you may receive more than one 1099-G form. You can identify which form is for which program by looking at the Payer Information section of the form, which will list either Paid Family and Medical Leave or Unemployment Insurance.
In Massachusetts, if you received PFML benefits in 2024 and have not received your 1099-G form by mid-February, you can call the DFML tax line at 855-610-9905. If you received a 1099-G form for PFML benefits but did not file for or receive benefits, you may be the victim of fraud, which you can report to the same number.
On the employer side, Internal Revenue Code Section 45S provides a tax credit for employers who provide paid family and medical leave to their employees. Eligible employers may claim the credit, which is equal to a percentage of wages they pay to qualifying employees while they are on family and medical leave. The credit is effective for wages paid in taxable years beginning after December 31, 2017, and before January 1, 2026. To be eligible, employers must have a written policy in place that meets certain requirements, including providing at least two weeks of paid family and medical leave annually to all qualifying full-time employees (prorated for part-time employees). The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year, with a minimum percentage of 12.5% and a maximum of 25%.
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Tax credits for employers
Eligible employers can claim tax credits for qualified leave wages paid to employees on leave due to paid sick leave or expanded family and medical leave for reasons related to COVID-19. This applies to wages paid between April 1, 2020, and September 30, 2021. Eligible employers can benefit from the credits by reducing their federal employment tax deposits. If there are insufficient federal employment taxes to cover the credits, eligible employers can request an advance payment of the credits from the IRS by submitting a Form 7200.
To be eligible for the tax credits, employers must have a written policy in place that meets certain requirements, including providing at least two weeks of paid family and medical leave annually to all qualifying full-time employees (prorated for part-time employees). The credit is a percentage of the wages paid to a qualifying employee while on leave, with a minimum of 12.5% and a maximum of 25%. The credit is effective for wages paid in taxable years beginning after December 31, 2017, and before January 1, 2026.
The Families First Coronavirus Response Act (FFCRA) provides paid sick and family leave for COVID-19-related reasons and creates refundable paid sick leave credits and paid family leave credits for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide paid sick and family leave under the FFCRA. The FFCRA credits are available for qualified leave wages paid to H-2A workers.
The credits earned due to FFCRA-imposed medical and family leave may be increased by the employer's qualified health plan expenses, including the portion paid by the employer and the cost paid by the employee with pre-tax salary reduction contributions. Employers who sponsor self-insured group health plans may use any reasonable method to determine and allocate plan expenses. To substantiate eligibility for the credits, employers should obtain a statement from the employee requesting leave, including information such as the reason for the leave, any quarantine or self-quarantine requirements, and the name(s) and age(s) of any affected children if the leave is due to school closures or lack of childcare.
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State insurance funds
In some states, like New York, Paid Family Leave (PFL) is funded entirely through employee payroll contributions. The contribution rate is set annually by the Department of Financial Services to match the cost of coverage. These contributions are deducted from employees' after-tax wages, with a maximum annual contribution cap that adjusts each year. For example, in 2024, the contribution rate was set at 0.373% of an employee's gross wages per pay period, with a maximum annual contribution of $333.25.
Other states, like New Hampshire and Vermont, allow voluntary private insurance plans, but the state government still plays a role in establishing the private market. They may contract with an insurance carrier to provide a base plan for state employees and purchase coverage for them, creating a risk pool.
Regardless of the specific state's approach, the Internal Revenue Service (IRS) offers a tax credit to employers who provide paid family and medical leave under Section 45S of the Internal Revenue Code. This credit is a percentage of the wages paid to qualifying employees on leave for up to 12 weeks per taxable year, with a minimum percentage of 12.5% and a maximum of 25%. To be eligible, employers must have a written policy in place, offering at least two weeks of paid family and medical leave annually to full-time employees (pro-rated for part-time workers).
When it comes to reporting family leave insurance on your taxes, it's important to note that you may receive multiple 1099-G forms if you received benefits from different programs, such as Paid Leave and Unemployment Insurance. These forms will indicate the specific program and include your personal information and the dollar amount of benefits received. This information is also submitted to the IRS, ensuring accurate reporting and compliance with tax regulations.
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Tax forms for family leave
In the US, the Internal Revenue Service (IRS) allows employers to claim tax credits for providing paid family and medical leave to their employees under Internal Revenue Code Section 45S. Eligible employers can claim a credit equal to a percentage of the wages paid to qualifying employees on family and medical leave for up to 12 weeks per taxable year. This credit is applicable for wages paid between December 31, 2017, and January 1, 2026.
To be eligible, employers must have a written policy in place that meets certain requirements, including providing at least two weeks of paid family and medical leave annually to all qualifying full-time employees (prorated for part-time employees). The minimum credit percentage is 12.5%, increasing by 0.25% for each percentage point by which the amount paid exceeds 50% of the employee's wages, with a maximum of 25%.
For employees, amounts received as family leave benefits are included in their gross income but are not considered wages for federal employment tax purposes. Medical leave benefits, on the other hand, are taxable only when contributions were not included in the employee's gross income or were paid by the employee.
Regarding specific tax forms, the 1099-G form is commonly mentioned in relation to Paid Family and Medical Leave (PFML) benefits. For instance, in Massachusetts, individuals who have received PFML benefits during the calendar year will receive a 1099-G form, which will list the benefit amount. Similarly, Washington State also mentions the use of the 1099-G form for reporting family leave benefits.
It is important to note that the IRS has issued guidance on the federal income and employment tax treatment of contributions and benefits under state PFML statutes, with Revenue Ruling 2025-4 providing details on the tax implications of benefits received from state-administered PFML programs.
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Frequently asked questions
You will receive a 1099-G tax form in January of the year after you received benefits. Report the amount stated in box 1 of the 1099-G on your tax return for that year.
Eligible employers may claim a tax credit equal to a percentage of the wages they pay to qualifying employees while they are on family and medical leave. The minimum percentage is 12.5% and is increased by 0.25% for each percentage point by which the amount paid exceeds 50% of the employee's wages, with a maximum of 25%.
Paid leave allowed under an employer's short-term disability program may be considered family leave insurance if it meets the requirements under the law.
To be eligible for family leave insurance, employees must have worked for their employer for at least one year. Employers must also have a written policy in place that meets certain requirements, including providing at least two weeks of paid family and medical leave annually to all qualifying full-time employees (prorated for part-time employees).
