To date, the IRS still has not clarified how PFML benefits in Massachusetts will be taxed. We’ve had several questions from employers about this, and there are simply no firm answers yet.
In the absence of IRS guidance, the insurance companies offering private plans have had to decide what to do. We started asking around, and we got so many different answers, I thought I’d share a few of them. The names of each carrier aren’t important for this post. My point is to document the variety of approaches the different companies are taking.
- Paid medical leaves will be treated the same as disability – they would be subject to FICA depending on the taxability of the claim.
- Paid family claims are not tied to the employee’s medical condition and will not be considered sick pay. It will not be subject to FICA, and should be set up as non-taxable so FICA does not get withheld.
- Medical leave benefits will be reported on Form W-2 and will be subject to payroll tax withholding, including FICA, and federal income tax withholding, if applicable.
- Family leave benefits will be reported on Form 1099-MISC and will not be subject to payroll tax withholding.
“Our stance is since there is no guidance from the state…all benefits are taxable to the employees no matter how the premiums are paid.”
“(We) are taking the position that both family and medical leave benefits are taxable.”
- Medical leave if employer pays 100%: fully taxable
- Medial leave with shared contributions: taxable based on the premium portion paid by the employer
- Family leave if employer pays 100% or employee pays 100%: reported on Form 1099, no FICA tax
Hopefully we’ll hear from the IRS on this soon, but in the meantime, if you have a private plan, you should reach out to your carrier to see how they’re planning to tax your claims payments. If you’re with the state plan, you could ask them or your accountant. This won’t get any easier until we have a firm decision from the IRS.
If you have questions about Massachusetts PFML or other employee benefits, we’d love to hear from you. Give us a call at (866) 724-0008 or click the link below.