TurboTax ignores PFL exclusion from box 16 of my W2

[user411]

I received PFL income in 2020 in the state of California.  I have verified with my own calculations and from reaching out to my employer that my PFL income was included in box 1 of my W2, but not in box 16 of my W2.  This makes sense because PFL is taxed by the federal government, but not by the state of California.  Because my PFL was paid by my employer I did not receive a 1099-G or an additional VPDI W2 identified as the only way to exclude PFL income from California taxes in this article.  Note that as far as I can tell the TurboTax software completely ignores the value in box 16.  Modifying box 16 to arbitrary values has no impact on California taxes in TurboTax.  So the only way I can get the TurboTax software to take into account the PFL excluded from box 16 of my W2 is to 1) Fill in the check box for "Paid Family Leave" in the W2 interview section.  2) Enter the PFL amount in the "Paid Family Leave (PFL) Income in California" of the California interview section of TurboTax.

Is this a bug in TurboTax?  Is there a better way to get TurboTax to recognize the PFL reduction in box 16 of my W2?

[BillM223]

"Note that as far as I can tell the TurboTax software completely ignores the value in box 16.Note that as far as I can tell the TurboTax software completely ignores the value in box 16."

It's not just TurboTax, but it's the State of California that ignores the amount in box 16.

Take a good look at California form 540. The amount from box 16 on your W-2 appears in line 12 of the 540. 

HOWEVER, this line 12 amount is not used in any other place on the return. Instead, the 540 starts with federal income and adds and subtracts things to get to the state tax. 

When you entered your W-2 on the federal interview, in the next screen - "Do any of these uncommon situations apply to this W-2?" - there is a check box "Paid Family Leave  - I earned all or part of this income as paid family leave"

This is the first thing that tells TurboTax that you have PFL.

Then, in the California interview, there is a screen that asks you to enter the amount on that W-2 that was actual PFL, i.e., payments from the insurance company.

The amount you enter here is the amount that is removed from CA state income. This is how you get TurboTax to recognize CA PFL so that it is not taxed on your CA return.

[user411]

Thanks for the info on California form 540.  The two steps you describe are exactly what I entered in TurboTax.  So its nice to hear someone else suggest the same approach.

However there is a discrepancy between the "Important" note in the TurboTax screen that allows the PFL amount to be specified and my W2.  This note states:  "Don't include PFL income that was paid directly by your employer.  This type of income is normal taxable wages.".  My PFL was paid by my employer but my W2 excludes the PFL I received from box 16.  The payroll department of my employer also tells me that the PFL I received is not taxable by the state of California.  So who's right?

[BillM223]

Where did this "PFL" comes from? You said that it did not come from the CA EDD, right? Did it come from an insurance policy that your employer bought to cover such cases? If so, normally you would have received a W-2 directly from the insurance company.

Is your employer telling you that there is such an insurance company, and that they are just "passing through" the PFL to you via your W-2, or is your employer paying something they call "PFL" from their own funds?

The problem is that the latter case is not true PFL and IS taxable in California.

The term PFL is thrown around a lot in California, but a great deal of what people think is PFL really isn't, in the CA tax code.

So what is this origin of this "PFL"?

[user411]

On the pay stubs I received the PFL payments were itemized as "CA PaidFamLeave".  When I asked my employer if this PFL was paid by an insurance company and if so would I receive another W2 from the insurance company their response was:  "This amount is
included in box 1 of your W-2. However, it's not included in box 16 for CA state wages as it's not
taxable in the state of CA. "  followed by "Since your CA Paid Family leave was paid out by your employer, you wouldn't receive an additional tax document as it's included in your W-2."

Do you happen to have a reference the section of they "CA tax code" you are referring to?  If my employer is mistaken about this, it would be good to let them know.

[MaryM428]

Your PFL benefits are taxable and reportable on your federal return only. For further information about PFL, visit State Disability Insurance or call 1-877-238-4373.

CA Paid Family Leave