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

[RobertB4444]

No, we still can't.  The IRS has still issued no guidance on this, just like Washington State says.  So you have two options:

1- Put the medical leave on your return in "Other Income" and when the system asks for the type of income enter "Washington Medical Leave".  If the IRS issues guidance on these payments that says that they are not taxable you would then file an amended return to get any taxes you paid refunded to you.

2- Leave the medical leave off your return and wait to see if the IRS issues guidance saying the payments are taxable. In which case you can amend your return to add the payments that you received back in.

I would tend to go with the first option.  Not just because it is safer but because the IRS has historically treated any payments received as replacements for wages that you would have earned as taxable.  I don't know why they haven't answered on this one - they are still very backed up - but I think erring on the side of caution for this would be wise.

@Wardjamilla

[SLitt]

Hi. 

Sorry, I’m not a tax professional. I’m not comfortable advising anyone as to what to do. I just thought the info might save others time searching on the WA PFML site.

I made a personal decision based on the info above and other bits of knowledge that I accumulated over the years. 

Take care,

S.Little

[Helmofamily]

I have seen different opinions, and everyone seems to think they should pay the taxes on it as taxable income. This is just for the medical leave portion as WA State is not giving out 1099-Gs for it. We have already paid taxes on it because we pay into it - that is a tax - it's coming out of your paycheck. If the IRS hasn't given any advise on this, which I cannot find any, then I would deem it non-taxable income until they come out and say you have to pay taxes on it. I think we give enough money to this corrupt government and you sure as hell can bet they won't give you a refund if they deem it non-taxable without you begging for it!

[kj1097]

Think of the WA PFML as short term disability insurance.  If you pay the premium for short term disability insurance yourself and collect any money from it, it is NOT taxable, because you paid for the product.

If your employer pays for short term disability insurance as part of your benefits and you collect from it, then it is taxable because your employer provided it to you as part of your compensation.

The WA PFML is paid for by BOTH you and your employer, which is why there is confusion over whether it is taxable or not.  The IRS has not provided WA state any guidance as of yet whether they will consider all, a portion, or none of it as taxable, which is why nobody knows for sure whether or not to report it.

So at this point there is not a right or wrong answer if we should report it or not.  However, the reason I think most people that have discussed it here have chosen to report it, is because if/when they make a decision, if they determine it IS taxable and you did not report it, in addition to owing the back tax, there will most certainly be penalties and fines for not paying it in the tax year it was received.  I'm not going to argue the merits if that is justifiable, tyrannical, or corrupt or not, it is simply reality.  If you report it, and they determine it is not taxable (or a portion is not taxable) you can file an amended return to get it back.

[ks88241]

Do we have to report MEDICAL LEAVE payments for 2022 and how do we know if they withheld any tax ? I  had direct deposits and received no statements.

[LindaS5247]

No you do not report it.

From the State of Washington regarding paid medical leave:

Is Washington state paid Medical Leave taxable?

No. We only issued 1099-G forms to customers who received family leave benefits in 2022. 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.

Will everyone who received Paid Leave benefits in 2022 get a 1099-G?

No. We only issued 1099-G forms to customers who received family leave benefits in 2022. 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 2022, your 1099-G will only include the family leave portion.

At this point it is the position of Washington State that it is not taxable, absent guidance from the IRS.  They are not issuing Form 1099's.  You can watch for updates in case this position changes.

Click here for more information on PFML, from Washington State.

[kj1097]

Your first answer is a bit misleading, as WA state will not say whether it is taxable or not.  They do not think it will be but they don't know and advise to consult a tax professional.  The answer you provided with that question was the answer to whether or not they will provide a 1099G for medical leave, not that the medical leave was not taxable.  I cannot locate anywhere on their site where they say specifically it is NOT taxable.  Please provide a link to this question on the state's website as I cannot find where that specific question/answer is located or where they specifically say it is NOT taxable.

Is Washington state paid Medical Leave taxable?

[HopeS]

Paid Family and Medical Leave are funded through premiums paid by both employees and employers. The premium rate is 0.8 percent of each employee's gross wages, not including tips, up to the 2023 Social Security cap ($160,200). Of this, employers with 50+ employees will pay up to 27.24% and employees will pay 72.76%.

Since the State is not reporting paid medical leave on Form 1099G and is only reporting family leave benefits, you should prepare your tax return accordingly.

Also, check with your payroll department to see how they report medical leave on your W-2. This will also provide confirmation as to how it was reported and whether or not it is taxable.

SEE  EXTRACT FROM STATE BELOW:

Will everyone who received Paid Leave benefits in 2022 get a 1099-G?

No. We only issued 1099-G forms to customers who received family leave benefits in 2022. 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.

Below is an Extract from Washington State.

"While the IRS declined to give us guidance on the taxability of Paid Leave benefits in Washington, based on what we’ve learned from other states with similar programs, we think it is likely that family leave benefits could be taxable and medical leave benefits would not. That is why we chose to provide 1099s for family leave only.".

Paid Sick Leave

@kj1097 

[joshks]

WA state said they are just sending it out voluntarily because they don't know what to do. The whole issue is that the IRS declined to clarify, and if it was so clear cut it's really confusing why they wouldn't just respond "yup, you definitely need to send out 1099s for those so we can tax it!"

So if WA had decided to just send us nothing (which to me sounds just as reasonable), rather than let people make the decision themselves in the vacuum left by the IRS, your response would seem to be "since it wasn't on a 1099, it's not taxable"? But that would kind of be based on the whim of WA state, no?

Sorry I'm not trying to be hostile, something in this chain of events just makes no sense at all to this layman.

My only guess is that the tax situation isn't as clear cut as it seems? I probably need a huge history/econ lesson on how taxes work but it doesn't seem quite right that this would be taxed considering anyone taking the payments is already paying almost 1% of their income every year in perpetuity to directly fund paid leave in the long term.  As as random person, any logic I can muster as to why this should be taxed is extremely flimsy compared to how I understand federal and state income taxes work... So WA state is going to take a voluntary deduction from my income to fund an optional state program, but then when I go to withdraw from the program I'm paying for, the Federal govt is supposed to get a piece of that even though they already took a federal income deduction from my paycheck? I get the feeling this is probably how a lot of taxes already work and I just need to pay attention more 🙂

[joshks]

When we had our first child last year my wife had some severe postpartum medical issues outside of the normal experience that put us back in the hospital weeks after birth. Looking back we could have easily qualified for the Medical leave instead of the Family leave for a large portion of my time off, but since we just had a baby, DUH, we're just taking it all as family leave, kind of common sense I thought.

So wtf IRS. If the answer isn't a super obvious yes, how is this anything other than "untaxable until proven taxable". Why should I voluntarily pay taxes on something that the taxman himself wont even officially utter two words on it? If they are entitled to dip into this program that is 100% funded by those withdrawing from it, in perpetuity, then I'd sure love for those lawsuits to just get it over with so I can be taught a lesson on how taxes are supposed to work haha why can't the IRS just say "it's taxable, here is why?" Shouldn't every single penny paid in taxes be tied directly to such a statement? LOL almost said that with a straight face.....

[MK007]

Hi Amy,

Do we have an updated guidance from IRS regarding the WA PF&ML tax treatment ?

What would you recommend doing in 2023 for the Paid leave taken in 2022 for a new born ?

Thanks,

M

[MK007]

@joshks - I did call the IRS customer service today and they also did not have any answer to this puzzle :( 

[BrittanyS]

The IRS has stated that "Qualified family leave wages for purposes of the credit are calculated without regard to federal taxes imposed on or withheld from the wages, including the employee’s share of social security taxes, the employee’s and Eligible Employer’s shares of Medicare tax, and federal income taxes required to be withheld." 

However, the IRS has yet to confirm whether they will consider Washington State's Paid Family and Medical Leave a taxable qualified family leave. This is why Washington state decided only to send 1099's out for family leave.  The IRS has stated that family leave is considered taxable in the past.  

As this needs to be clarified, the state determined they would issue the 1099s based on how the IRS has handled family leave in the past versus having to make corrections once the IRS determines they will decide on whether they consider the funds taxable.  

If you include the income on your return and the IRS determines the funds will not be taxable, you can file an amended return to correct 1099 that was issued.  

@joshks 

[joshks]

Thank you for the reply! So this still doesn't really answer my whole question but that's not something anyone here could help with since it needs to come from the horse's mouth I think... I would have treated my leave differently, had the IRS just.... SAID SOMETHING. I would have qualified for a large portion of the leave to have counted as medical instead of family, but we went with family since we were gonna take it anyways, and it covered the entire duration, and now I'm going to pay a couple thousand dollars because the IRS can't seem to answer a simple question that TONS of experts seem pretty confident on? W. T. F. 

This isn't exactly a surprise to me either, I understood when taking the leave that the tax situation wasn't super clear so I knew that by not earmarking the right % that I was risking not having enough come tax time. I will still be very much getting a large return whether this is taxed or not, so that's not the immediate issue for me personally.

My problem is that my poorly educated common sense tells me that it doesn't make sense to be taxed for withdrawing from a fund that I directly paid for, not indirectly through a big tax pool or whatever, but like, it was laid out:

--you take a voluntary chunk of your income, ~1% ("voluntary" now, in the sense that employers can opt out and plan their own)

--throw it in a big state account every year

--when comes your time, you take your leave, by withdrawing from the big state "account" you deposited your deduction into

--you keep paying dues and eventually you have paid your entire leave, yourself, as the system intends

some people will have already paid more than their leave amount, into the program, before they ever even receive any of that leave pay

--but yet, even though the Fed already took an income cut, at the SAME TIME i deducted my income to fund the leave I'm taking, they get to take it again from the leave? That I funded before I even got my net pay?

This feels like getting charged income taxes on my HSA account spending but I know I must be missing something...

[Pphillips]

Has there been a decision here? Still seeing the same text on the WA PFML page that they haven’t received guidance from the IRS. 

What types of penalties are assessed if they decide later it is taxable? 

Sorry for reopening this thread and appreciate the guidance!