How to correctly file California Pregnancy SDI, PFL 1099-G and W2 in Turbotax Desktop

[razor5]

I am MFJ in TurboTax Desktop Software. In 2023 my spouse was on after pregnancy disability leave and then CA PFL leave.

For SDI the state paid her 60-70% of her salary and her employer covered remaining allowing her to get 100% wages. The partial payment from the employer shows up on W2 as "Parental Leave" for 2023 payslips.

1) As far as I know the 60% paid by government as pregnancy SDI is not taxable either at federal level or state level. We did not receive any form/documents for this payment from government. Is this taxable? Do I need to report this payment anywhere?

2) The partial payment paid by the company while on CA SDI shows up on W2. Is this income taxable at federal level and/or CA state level? If so how can I ensure this is being reflected correctly on my turbotax filing?

For PFL the state paid 60-70% of salary based on their calculation. There was no payment made by the company during PFL leave. So my spouse only received partial salary during PFL.

As far as I know the PFL payments are taxable at federal level but not taxable at CA state level. We revived 1099-G from state for PFL payments. I am confused about how to correctly report this in TurboTax with W2.

3) When I am entering my spouse W2 in TurboTax which did not had any PFL payments (but did had parental leave payments see, above) should I check the box in "Uncommon situation where it asks for "PFL"?

4) Is below the correct place to report 1099-G for PFL received from state?

5) In the Unemployment section under wages (4) above should I be checking the PFL field?

6) Also for some reason when I enter my spouse W2 TurboTax shows this warning to confirm W2 was entered correctly as it thinks medicare wages might be incorrect. I checked the numbers and they match what is reported on W2.

[MonikaK1]

Responding to your questions, in order:

1. California state disability payments are not taxable unless they were paid on a claim for regular unemployment that converted to disability.

2. Amounts paid as wages by the employer aren't considered PFL. Amounts paid by an insurance company and reported on Form W-2 may be PFL. See further explanation below.

If you also received amounts on Form 1099-G, they will be automatically deducted from California income as unemployment benefits not taxed by the state.

3. Don't check the PFL box for the W-2 unless it was paid by an insurance company. See further explanation below.

4. Yes, enter the 1099-G in the Unemployment section.

5. Yes, you can check the PFL box on the 1099-G screen if it applies.

6. TurboTax may have found that the Medicare withholding didn't correspond to the amount expected based on the rate and your income. For tax year 2023, for example, if you are married and filing jointly, there is an additional .9% tax that only applies to income that exceeds $250,000 in combined earnings. 

In California, Paid Family Leave (“PFL”) provides benefit payments to people who need to take time off work for certain family issues.  PFL paid by the California Employment Development Department (EDD) is reported on Form 1099-G, while PFL paid through a Voluntary Plan for Disability Insurance (“VPDI”) is reported on a W-2, either through the employer or a third-party insurer.  

Paid Family Leave (PFL) income is taxable on your federal return, but not taxable on your California State return if either of the following situations apply:

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

If your PFL is reported on a W-2, you must identify the amount (if any) that was paid by an insurance company, and not your employer.

On the “Do any of these uncommon situations apply to this W-2?” screen in the federal interview, if you mark the W-2 as containing PFL, then TurboTax will display a PFL adjustment screen in the California interview, showing the total wages from the W-2 marked by the user as containing PFL, and asks the user to review and adjust the amount as needed. The screen also instructs, “Don’t include PFL income reported on a 1099-G. This will automatically be deducted from your California income.”

If none of the amount was paid by an insurance company, and all of it was paid by your employer, enter $0 in the wages box in the PFL adjustment screen in the California interview, because any amount reported by your employer in box 16 of a W-2 is considered compensation for services or taxable fringe benefits in California.

The California Franchise Tax Board regularly audits returns with this issue and adds back to California income any amount incorrectly identified as PFL that was paid by an employer as regular wages or was excluded twice by deducting amounts already excluded on Form 1099-G.

If you got a W-2 from an insurance company for PFL, then you do subtract it from California wages. If, however, your employer just paid regular wages in your W-2, then you don't subtract it from California wages and you should remove it from the amount in the California PFL screen.

Any PFL reported on a Form 1099-G will automatically be deducted from your California income. Don't deduct it separately on the screen where you deduct PFL from an insurance company or you will get a double deduction. Also, don't deduct regular W-2 wages as PFL.

See this California EDD webpage for more information.