The IRS released guidance last week on the income and employment tax treatment of contributions and benefits paid in certain situations under a state paid family and medical leave program, as well as the related reporting requirements.
Revenue Ruling 2025-4, which the IRS issued on Jan. 15, includes guidance for the District of Columbia and states that have mandatory paid family and medical leave programs and for employees working in and employers operating in those states. According to the IRS, the guidance was issued in response to requests to clarify the federal tax treatment of state paid leave programs that help pay employees who can’t work because of non-occupational injuries to themselves or family members, as well as sickness and disabilities.
Rev. Rul. 2025-4 explains multiple tax treatment scenarios for contributions to and benefits paid in certain situations under these programs, in addition to the related reporting requirements.
For example, in general, employers can deduct the amount they contribute to mandatory paid family and medical leave programs as a payment of excise tax. Similarly, an employee may deduct the amount they contribute as a payment of income tax, if the employee itemizes deductions, to the extent that the employee’s deduction for state income taxes doesn’t exceed the state income tax deduction limitation, the IRS said.
An employee who receives state paid family leave payments must include those amounts in the employee’s gross income, according to the IRS. In addition, an employee who receives state paid medical leave payments must include the amount attributable to the employer portion of contributions in the employee’s gross income.
“This latter amount also is subject both to the employer’s and employee’s shares of Social Security and Medicare taxes,” the IRS said. “The amount attributable to the employee’s portion of the contributions is excluded from the employee’s gross income, and this amount is not subject to Social Security or Medicare taxes.
Rev. Rul. 2025-4 also provides transition relief to the District of Columbia, states, and employers from certain withholding, payment, and information reporting requirements for state paid medical leave benefits paid made during calendar year 2025.
This guidance will impact the District of Columbia and states administering paid family and medical leave programs, employers, and workers contributing to such programs, and those who receive payments from these programs, the IRS said.
The tax agency is seeking comments on additional situations and aspects of state paid family and medical leave programs that aren’t covered in this revenue ruling electronically via the Federal eRulemaking Portal at https://www.regulations.gov. Type IRS-2025-0012 in the search field on the https://www.regulations.gov homepage to find this revenue ruling and submit comments. Comments can also be sent by mail to: Internal Revenue Service, CC:PA:LPD:PR (Revenue Ruling 2025-4), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C., 20044.
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Tags: Benefits, Income Tax, IRS, Payroll, Taxes
