IRS Delays Enforcement of PFML Tax Rules

Quick Hits

• The IRS recently declared it will not enforce tax and reporting requirements for state paid family and medical leave (PFML) benefits in 2026.
• Thirteen states and Washington, D.C., have enacted state-run paid family and medical leave programs.

Under Revenue Ruling 2025-4, amounts paid to an employee under a state’s PFML program should be included in an employee’s gross income and are wages for federal employment tax purposes. However, for 2025, states and employers did not have to comply with the employment tax and reporting requirements in that revenue ruling.

In its latest notice, the IRS stated, “States may need additional time to make the necessary changes to their systems and state budgets to comply with their federal income tax and employment tax obligations, as well as related information reporting responsibilities…. For this reason, calendar year 2026 will be regarded as an additional transition period for purposes of IRS enforcement and administration.”

The grace period does not apply to employer “pick-up” contributions, when an employer voluntarily pays an employee’s required PFML contribution. Those amounts still must be considered wages and reported on Form W-2.

California, Colorado, Connecticut, Delaware, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Washington, and Washington, D.C., have mandatory paid family and medical leave programs. In some states, the benefit payments have not started yet.

Next Steps

Employers will not face enforcement or penalties in connection with the pay reporting and tax withholding requirements for state PFML benefits in 2026. They may wish to prepare their systems to comply with these pay reporting and tax withholding obligations in 2027. Those that work with a third-party payroll vendor may wish to ensure that the vendor is prepared to properly execute the reporting and tax withholding for PFML benefits in 2027.

Ogletree Deakins’ Employment Tax Practice Group and Leaves of Absence/Reasonable Accommodation Practice Group will continue to monitor developments and will provide updates on the Employment Tax and Leaves of Absence blogs as new information becomes available.

Michael K. Mahoney is a shareholder in Ogletree Deakins’ Morristown office, and chair of the firm’s Employment Tax Practice Group.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

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