How does TurboTax treat Washington state Paid Family and Medical Leave?

[pigwidgin]

WA state now has a PFML program and they are issuing a 1099-G.  However, they said on their FAQ page that they never got an answer back from the IRS about whether or not PFML distributions are taxable or not at the Federal level.  How does TurboTax deal with this?  I suspect the Feds will say it's taxable income eventually.  Are TurboTax specialists monitoring this situation and will update the product if WA state gets an answer?  If I want to just go ahead and use the 1099-G as taxable income, how do I do that?  Or does TurboTax automatically treat 1099-G income as taxable?  Thanks!

[MarilynG1]

Yes, Unemployment and Paid Family Leave reported on a 1099-G are taxable on your Federal return.

Click this link for info on How to Report a 1099-G for Paid Family Leave.

[pigwidgin]

Thank you for the quick reply.  I actually had seen that link you specified but it wasn't clear to me if TurboTax sees the 1099-G entry as taxable.  From what you're saying, sounds like it does.  

[BillM223]

Yes, Paid Family Leave is considered taxable on the federal return because it is treated like a form of unemployment. And as Marilyn says, anything reported on a 1099-G will be assumed to be taxable on the federal return.

Paid Family Leave may or may not be taxable on the state return, but since you are in Washington state and do not have an income tax, this is not a concern to you.

[pigwidgin]

Thank you for the additional answer, I really appreciate it!

[robbertom]

@MarilynG1 ,

This answers the question for paid family leave, but not paid medical leave, which Washington state is also now providing (and is not providing a 1099-G for, see 3rd question on state's page here: https://paidleave.wa.gov/help-center/individuals-and-families/payments/ ). TurboTax doesn't have a way to report state-paid benefits that don't have a 1099-G associated with it...

[DawnC]

Pay from your employer, a third-party insurer, or the government while you're unable to work due to a serious illness or injury is considered paid family leave (PFL) income.

Example: You're getting regular paychecks while you're home recovering from major surgery, serious injury, chemotherapy, or pregnancy complications. You're receiving PFL pay.

Typically, companies that offer paid medical leave or disability do so through a third-party insurer. You may receive a separate W-2 from that insurer to report the PFL income or you may see the PFL reported as third-party sick pay on your regular, company-issued W-2.

Related Information:

• Is sick pay the same thing as paid family leave?
• What is Paid Family Leave (PFL)?      @robbertom

[robbertom]

@DawnC 

Unfortunately, WA State has stated that they will not be providing any reporting forms (1099-G) for paid medical leave, only for paid family leave. The information you linked does not consider this option.

[pigwidgin]

@robbertom So glad you noticed that.  Here is the text on the WA state site about family leave versus medical leave:

From:

https://paidleave.wa.gov/help-center/individuals-and-families/payments/

Will everyone who received Paid Leave benefits in 2020 get a 1099-G?

No. We only issued 1099-G forms to customers who received family leave benefits in 2020. Family leave includes leave to bond with a new child born or placed in your home and leave to care for a family member with a serious health condition.

If you received both family and medical leave in 2020, your 1099-G will only include the family leave portion.

So since I took WA State Medical Leave, that implies that I will not get a 1099-G and now I have to figure out how to get TurboTax to handle it.  My thought is to treat it as taxable income, even though the State has not given any tax guidance on it.   So the question remains as to how best to have TurboTax deal with this situation?  Thanks.

[robbertom]

@pigwidgin Yeah, I agree that the main question is where / how to report it... However the problem is that state programs have been set up in the past 5 years without any guidance from IRS. If you REALLY want your eyes to go crooked, you can try following this summary of the issue: https://taxnews.ey.com/news/2020-0128-state-laws-requiring-paid-family-and-med[product key removed]e...

Which includes such scintillating commentary as

" If the benefit is received for leave taken for one's own serious health condition, the benefit would be taxed in the same manner as a disability benefit. That is, the exclusion provided under IRC Section 104 for amounts received through accident or health insurance would exclude the benefit from the recipient's income to the extent it was attributable to an employee's post-tax contributions. If the benefit were funded with employer dollars (either as pre-tax salary reduction or otherwise), IRC Section 104 would not exclude the income.  To further complicate the treatment of PFML payments under IRC Section 104, the taxation of disability benefits for an arrangement funded by a mix of employer and employee dollars is particularly complex."

Because WA's system is funded by both employer and employee, and the state doesn't break down those costs fractionally for who is contributing how much to the family leave vs sick leave portion, it seems that "particularly complex" in this case just means it hasn't been done by any state because a state-run mutual insurance was not considered by tax law / IRS guidance. So this could also mean that you don't have to report it... Seems like it's damned if you do, damned if you don't.

[pigwidgin]

@robbertom thanks for the link.  I will check it out.

Definitely does feel that way!  I'm still thinking I'll err on the side of it being taxable and then if I find out that it isn't taxable down the road, file an amendment to get the money back.

But still hoping a TurboTax employee here can tell us where to enter taxable medical leave benefit that has no 1099-G associated with it......

[AmyC]

My opinion:

• The department of labor offers a comparison chart for types of sick and family leave here. The paid family leave is compared to an insurance policy reminiscent of a disability plan.
• The state of NY has decided their matching version of Paid Family Medical Leave will be taxable.
• WA offers free help.
• In an insurance plan, like disability, if you pay the premiums, then the collection is tax free. While if you did not pay the premiums, you pay taxes on the income.

Putting all of this together, makes me think this will probably end up being taxable. I imagine there will be lawsuits to settle the issue definitively.

Since the IRS has not made it taxable yet, I would not report it.

If you want to go ahead and pay taxes on it, you can enter it as Less Common income > Other Reportable income. This allows you to pay the federal tax- not the Medicare and Social Security tax.

[pigwidgin]

@AmyC   

Thank you, Amy.

[lesiney]

I received paid medical benefits in 2020; however, due to my employer's size, my employer handled and paid the benefits directly to me (but they were Paid family medical benefits and not employer sick leave). With that said, when I contacted my employer requesting a 1099 Form, they told me that they would not provide one. The reason being is that the IRS did not provide them with taxing guidance.   What can I do? If the IRS determines that it is taxable income, will I get a penalty for not reporting it?

I would really appreciate any help I can get regarding this.

@AmyC 

[MaryK4]

There was a special federal sick leave that the federal government required- The Families First Coronavirus Response Act (FFCRA or Act) requires certain employers to provide employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. It was paid directly from the employer who gets a credit from the government for it.

Look on your W2 and if you see in Box "sick leave wages subject to the $511 per day limit;” or “sick leave wages subject to the $200 per day limit.” it was already included with your W2 information.

@lesiney