WA PFML medical leave (not family leave) taxable?

[NaySao]

Hello. There have been a couple of older conversations about this topic, and it was all a bit conflicting due to the ambiguous nature of it all, but WA's Paid Family & Medical Leave website has recently updated its FAQs and slightly altered its wording (see below). I am looking for advice on whether or not I should report the medical leave payments I received last year when I had surgery. I was not issued a 1099-G. The new wording makes me lean towards not reporting because it *might* not be taxable (see below). But if I don't report the income, and it's later deemed taxable, what would be the penalty for not reporting it and how would I fix it?? 😩

If I do report it:

Without a 1099-G, where and how would I report the income?

If it is later deemed nontaxable, how long would I have to amend the return to receive a refund?

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

"Do I have to pay taxes on Paid Leave benefits?"
"Unfortunately, we don’t know whether the IRS will consider your Paid Leave benefits “taxable income.” We asked them to tell us so that we could provide customers with the right information, but they declined our request. We understand that puts customers in a confusing situation and we’re sorry. But without specific guidance from the IRS, we can’t provide more information or detail to you. Our best and only recommendation is that you consult a tax professional for advice."

"Why did Paid Leave provide 1099s for family leave but not medical leave benefits?"
"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."

"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."

Thank you!!

[DawnC]

If it is taxable and you don't report it, you may be required to file an amended return and pay interest.  An Accuracy-Related Penalty applies if you underpay the tax required to be shown on your return.  Underpayment may happen if you don’t report all your income or you claim deductions or credits for which you don’t qualify.

There are  2 common Accuracy-Related Penalties to individuals:

• Negligence or Disregard of the Rules or Regulations
• Substantial Understatement of Income Tax

See Publication 525    This publication discusses many kinds of income and explains whether they are taxable or nontaxable.  It includes discussions on employee wages and fringe benefits, and income from bartering, partnerships, S corporations, and royalties.   It also includes information on disability pensions, life insurance proceeds, welfare, and other public assistance benefits.  Check the index for the location of a specific subject.

In most cases, an amount included in your income is taxable unless it is specifically exempted by law.  Income that is taxable must be reported on your return and is subject to tax. Income that is nontaxable may have to be shown on your tax return but isn’t taxable.

[NaySao]

I looked at the Publication 525 link you shared but it wasn't very clear regarding this specific type of income. That's probably why WA state doesn't have an answer yet. I could see it going either way. But they didn't send me a 1099-G and then their site says, "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." But as you mentioned, most forms of income are taxable unless it is specifically exempted by law. I didn't see an exemption for this particular type of income listed in the 525 guide.

So I don't really know how to proceed. I obviously don't want to be penalized in the future, but I also don't want to overpay. What are your thoughts?

If I do report it:

Without a 1099-G, where and how would I report the income?

If it is later deemed nontaxable, how long would I have to amend the return to receive a refund?

You also mentioned, "Income that is nontaxable may have to be shown on your tax return but isn’t taxable." Could you please elaborate on that? How/where I would do this?

Thank you so much. I know there are a lot of questions up there and I appreciate your time!!

[NaySao]

Part 2 of reply:

Sorry, additional questions regarding this issue...

Since WA PFML did not send me a 1099-G does that also mean they did not report the income to the IRS?

If that's the case, would they send all the "missing" 1099s to the IRS down the road if it's later deemed taxable with certainty?

How long would they have to do that?

And wouldn't the PFML program be responsible for the consequences (penalties) from everyone's missing 1099s and the income that went unreported during these years of uncertainty?

Would the penalties and interest then be excused/waived for individuals in this case, since the program's actions made it seem like it didn't need to be reported?

Or is that not how any of this works. 😅

Thanks again.

[NaySao]

Does anyone have an opinion about whether or not this might be taxable or exempt? What should I do?

[DaveF1006]

Yes, this money is federally taxable and reported on your federal tax return. If you didn't receive a 1099G, here is how to report. 

1. Go to Wages & Income
2. Scroll all the way down to Less Common Income
3. Select Miscellaneous Income, 1099-A, 1099-C from the drop-down
4. Select Other reportable income
5. Any Other Taxable Income? = Yes
6. Description =Paid Family Medical Leave-WA
7. Amount = $XXXX.XX

Some states may not issue a 1099G but you still have a reporting responsibility to report.

@NaySao

[NaySao]

@DawnC @DaveF1006 

Thank you very much for your responses. I've since discovered that my payslips list PFML under Taxes rather than Deductions (even though it is an insurance, not a tax), and though calculated on a pre-tax basis, it did not reduce my taxable income, therefore it is considered a post-tax deduction.

The premium is 0.6% of income and the employee gets 0.439% removed from gross wages each paycheck.

So I paid 73.22% of the premiums, employer paid the remainder of 26.78%.

I received more income than I paid in premiums.

Should I report 100% received, 100% minus premiums paid, or 73.22%, or only 26.78%?

I have seen people recommend the latter two, so it's very conflicting.

WA 1099-G form received by Family Leave income recipients mentions reporting all minus premiums, but that's a different part of the program so the rules may be different.

I would like to know what you two recommend. Thank you so much!!

[DawnC]

Disability paid by an insurance company for things like lost wages, loss of limb, or loss of sight may or may not be taxable, depending on circumstance:

• If the premiums were paid by your employer and weren't included in your taxable income, the disability is taxable
• If you paid the premiums out of your own pocket or with payroll deductions that came out of your after-tax income, the disability isn't taxable
• If you and your employer jointly paid the premiums, only the disability amount covered by your employer's payments are taxable

I would report taxable income of only the portion of the payments covered by your employer.   The portion you paid for post-tax is not taxable.   Keep detailed records of your computations in the unlikely event you receive an inquiry.   

[NaySao]

Thank you so much, @DawnC !

That makes sense--it's disability insurance!

"I would report taxable income of only the portion of the payments covered by your employer."

Example:

$100 premiums paid

• $73 paid by employee with post-tax $$ (did not reduce taxable wages)
• $27 paid by employer (27%)

$1,000 medical leave received

• 27% = $270

Report the $270.

The remainder of the $1000 income is not reported and not taxable.

Thank you SO MUCH for your patience and assistance with this!

[bagel001]

IRS issues guidance for the District of Columbia and States that have paid family and medical leave ...

[bagel001]

My understanding of the above IRS guidance is that the medical leave payments attributable to employer contribution of the premium are taxable. Per this link Estimate your Paid Leave payments – Washington State's Paid Family and Medical Leave the employers in WA paid 28.57% of the premiums in 2024 so I guess that % of the medical leave benefit received in 2024 should be taxable and rest is non-taxable. Hope my understanding is correct. Experts please chime in!

Does this look right @DawnC ?

[DaveF1006]

No that is incorrect. Your entire PFML amount is taxable based on the full amount of contributions your employer paid.  There are no percentage adjustments to be made. 

[ada2evelyn]

So how did you solve this issue in your tax filing finally?

Really confusing here.

[AmyC]

It was very confusing until the IRS began issuing more clear guidelines. We now have definitive answers. The taxable portion is issued by the state on a tax form to you and the IRS.

Reference:

Payments - Washington State's Paid Family and Medical Leave which states: If you received both family and medical leave, your 1099-G will only include the family leave portion.

@ada2evelyn 

[ada2evelyn]

@AmyC 

Thank you for the follow up.

So if I didn't get the 1099-G due to I was on medical leave not family leave and WA ESD told me they are not sending 1099-G to me, I can safely not include the PFML benefit in my federal filing (WA has no state filing part)?

Since last night, I was reading IRS' new post relevant with this, but still am confused:

https://www.irs.gov/pub/irs-drop/rr-25-04.pdf

Anything changed per this post?

Thanks again and have a great weekend!