My wife and I each took parental leave in 2023, and we both reside in California. On my W-2 form, Box 14 lists 'PFL' and 'VPDI', whereas my wife's W-2 form only indicates 'VPDI'.
I have two questions regarding how to categorize these entries on our tax returns,especially considering the specific tax treatments of PFL in California:
Categorizing PFL: Under which category should I include 'PFL'? Considering that PFL benefits in California are taxable at the federal level but not at the state level, would it be appropriate to classify it as 'Emergency Paid Family Leave', or is there a more accurate category I should use?
Indicating Paid Family Leave in Uncommon Situations: When using tax software (like TurboTax) and reaching the section that inquires about 'uncommon situations', should I select the option for 'Paid Family Leave'?
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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. Generally, PFL is taxable on the federal return, but not taxable in California.
The amount TurboTax shows in the California interview for PFL, asking if you need to edit it, is generally because the user checked a box in completing the W-2 in the Federal section indicating that some or all of the W-2 was attributable to Paid Family Leave.
If you indicate in the Federal section that some or all of the W-2 is attributable to PFL, TurboTax displays a PFL adjustment screen in the California interview, showing the total wages from the W-2 marked by the user as containing PFL and asking 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 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.
California regularly audits returns for this issue, because they find so many returns where it was not handled correctly.
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