Need help in understanding FLMA California tax

[aays2]

Hello,

My FMLA benefits are included in W-2 box1, but they are deducted and different amount appears on box 16 of W-2 as they are not part of state tax.

While filing CA state form 540, line 12 is showing the amount of W-2 box 16, but line 13 is taken from the federal return. The whole CA tax is then calculated using line 13.

Is this correct? If line 13 is used then I will end up paying state tax on FMLA benefits.

[BillM223]

Yes, it is true that the California return does not use the amount in box 16 of your W-2. You can see this by looking at Line 12 on the 540 - Line 12 is not used anywhere else on the CA return. Instead, the 540 takes numbers from the federal return and works with that.

In your case, did you mean "FMLA" (Family and Medical Leave Act) or "PFL" (Paid Family Leave)? The 1993 Family and Medical Leave Act (FMLA) entitles eligible employees to take an unpaid, job-protected leave of up to 12 work weeks in a 12-month period for family and medical-related reasons. For this reason, I don't think it will appear in box 1 of your W-2.

If you meant PFL, then don't worry about box 16 on your W-2, but instead look for he screen in the California interview that asks you about what amount of your PFL is taxable. NOTE: read the instructions carefully, because it is easy to misread the screen.

But do come back and let us know.

[aays2]

@BillM223 Thanks. I received PFL and it added in box1 of W-2 and absent from box16. Where I can see the screen to adjust this PFL amount in CA state return in TurboTax Desktop software? Currently it is taking the total amount which is including PFL as well.

[BillM223]

First, make sure that in the screens after you enter the W-2 that you check off that it is PFL (see first screen shot below). 

Note that TurboTax incorrectly thinks the entire W-2 is PFL, which you will have to correct later.

On the second screen shot, there is a 40,000 plugged into the box next to PFL income from the insurance company. NOTE: TurboTax has taken the entire box 1 amount from the W-2 and put it into the box. This is almost NEVER the right amount to leave in - you should replace what is in that box with the actual amount of PFL.

Come back if you have more questions.

***

Paid Family Leave (PFL) is income that is taxable on the federal return but is non-taxable on the California state return if it

• is paid by the state's Employment Development Department (EDD) and appears on a 1099-G form –OR–
• is paid by an insurance company under a Voluntary Plan for Disability Insurance (VPDI) and reported on a W-2 from the insurance company.

To repeat: PFL is not included in your employer's regular W-2 but on a separate W-2 from the insurer.

Amounts called “PFL” that are paid by your employer and which appear on the W-2 from your employer (see last image below) are taxable both on the federal level and by the state of California.

When you mark a W-2 in TurboTax as being PFL, a screen about PFL appears in the California section of the interview.

**W-2 Interview**

**California Interview**

The amount of wages on the W-2 marked as PFL is displayed so you don't have to look it up, but you are asked enter the amount (if any) that was paid by an insurance company, and not your employer.

If none of the amount was paid by an insurance company but all of it was paid by your employer, then you must enter zero (0) in the wages box on this screen, because any amount reported by your employer in box 16 of a W-2 is considered by California as compensation for services or taxable fringe benefits.

Note that compensation for short-term disability, vacation days, sick leave, and other employer benefits are not considered to be tax-free PFL.

*****

What if taxpayer gets the 1099-G from the EDD? Do they report it and how?

Yes, you should receive a 1099-G from the EDD. You may be able to get it online by going to the EDD's website.

Yes, enter the 1099-G into your return, because, as I noted above, it is taxable on the federal level.

Then, when you get to the California return, there will be a screen titled "Your Unemployment or Paid Family Leave Doesn't Get Taxed in California". At the bottom of this screen, the last paragraph says that since PFL is not taxed in California, TurboTax has already subtracted the PFL from your state income, and, most importantly, "There's nothing you need to do."

This is the correct outcome.