By Mark Adams
On Jan. 15, 2025, the IRS issued Revenue Ruling 2025-4, clarifying the federal income and employment tax treatment of contributions to, and benefits paid under, state paid family and medical leave (PFML) programs—plus related reporting.
The IRS provided transition relief for calendar year 2025 for certain withholding, payment, and information-reporting requirements for state paid medical leave benefits. States must issue information returns (e.g., Form 1099 for reportable payments). Starting January 1, 2026, the default federal rules apply—but only matter where there’s an employer-funded share (like MA DFML medical). In employee-only funded programs (CT, RI), medical-leave benefits remain excluded and non-FICA under the ruling.
Consequently, the Massachusetts Department of Family and Medical Leave (DFML) issued tax FAQs and an October 2025 memo aligning its program with Rev. Rul. 2025-4. Specifically, the DFML states that beginning January 1, 2026, it will withhold the employee’s FICA share on the taxable portion of medical-leave benefits, and report benefits and tax withholdings accordingly (i.e., applying third-party sick pay mechanics for the employer-funded share).
But that also leaves employers who are required to pay medical leave contributions (namely those with 25 or more employees) with the responsibility for remitting the employer share of FICA (Social Security and Medicare) and FUTA (federal unemployment) taxes on certain medical leave benefit payments made to employees on or after January 1, 2026 unless the employer is otherwise exempt from social security and/or medicare taxes. These employers will also be responsible for reporting the taxable portion of medical leave benefits on the employee’s W-2.
To accomplish this, the DFML will provide employers with a Daily Sick Pay Report on the employer portal, which will include the amount of medical leave payments and taxes withheld. Unfortunately, the DFML will not determine the employer’s tax responsibility, but rather leave that to employers to do so. To access these reports, employers must have access to the employer portal.
Again, this responsibility will apply only to benefits paid out on or after January 1, 2026 and not benefits paid out prior to that date. We will keep you informed as further guidance is provided on this. But employers should start to collaborate with their payroll providers or tax professionals now so they can be ready for the impact of this come the start of the new year.