Massachusetts MA PFML - taxation of Medical Leave

[Ben Molony]

I've a received a 1099-G from the MA PFML department as I took medical leave in 2022.  I note from the MA DOR website that MA itself rather unhelpfully doesn't seem to have any opinion on how PFML should be taxed:

"As of 2023, the IRS has not yet made a ruling on whether your PFML benefits are considered 'taxable income'.  Massachusetts tax treatment will follow the guidance provided by the IRS." 

"The Department is issuing 1099-G forms to all employees who received PFML benefits in 2022 in the event that you need this information for filing your 2022 tax return. How you, as an individual, report this income for tax purposes is up to you and your tax professional".

In Turbo Tax, the input form for 1099-G unemployment has been updated to include "Paid Family Leave" which Turbo Tax then treats as if it was unemployment (including reporting it on Line 7 of schedule 1, "Unemployment compensation").  This seems reasonable to me for family leave.

However for medical leave, I can't see why the tax treatment would be different to existing disability insurance schemes, where the income is treated as earnings and is tax free to the extent that you paid after-tax premiums.  To get this to work in Turbo Tax I am considering entering the 1099-G as if it was a 1099-MISC (which will then give the right earned income for the EITC and the ACTC).  Has anyone come to a different conclusion on this?

[RobertB4444 · Accepted solution]

The IRS has long said that if any income has not been officially excluded from being taxable then it should be included.  So the default for this money is that it is taxable - which Massachusetts has acknowledged by sending you the 1099-G.  

If I was preparing this return for you I would enter these payments in as government payments just like unemployment - taxable but not subject to self-employment tax.  But your treatment - agreeing that they are taxable less previously taxed contributions - has merit and could be argued.  Make sure that you save all the documentation showing the after-tax contributions and the payments you received.  It's unlikely that you are audited over this but since the amount on your tax return will not match the amount on the 1099-G it may flag a review.

@Ben Molony