IRS Issues Guidance on PFL (Paid Family Leave) Rev. Rul. 2025-4

[Ahsaafir]

This new ruling by the IRS (RR-25-04) seems to suggest that PFL benefits are reported on gross income but are non-taxable and should be treated as Medicare or Social Security benefits. 

Here is a quote from the ruling:

"Although the entire $19,200 that State X pays to Employee B as family leave benefits is included in Employee B's gross income for Federal income tax purposes, it does not constitute wages for Federal employment tax purposes under $$ 3121(a), 3306(b), and 3401(a), and is neither sick pay, as defined in § 3402(0), nor a disability leave benefit payment like those described in Rev. Rul. 72-191.

Rather, family leave benefits are more closely analogous to social security benefits partially included in gross income under § 86 but not considered to have been paid as remuneration from employment, and therefore are not considered wages for Federal employment tax purposes under $$ 3121(a), 3306(b), and 3401(a)." 

1. Is this saying that PFL will not be taxable? 

2. And can this ruling be applied when filing my 2024 taxes? 

3. Can a 1099 MISC form be filed as a 1099 G since Paid Family Leave is not really an independent contractor payment but rather a benefit? 

[MaryK4]

1. No, it is not saying that Paid Family Leave is not taxable, but clarifies that it should not be wages (not a payment of compensation so no FICA or employment taxes withheld) and it is taxable income to the extent that the employer pays the contributions (the analogy to social security benefits which is not taxes 100% because the employee made contributions).

2. It does apply to the 2024 taxes, but provides guidance on the reporting going forward.

3. If the Paid Family Leave is made by an insurance company, the insurance company is not able to issue a 1099-G because 1099-G is issued by a government.