In 2025, the IRS issued guidance for the federal income and employment tax treatment of contributions and benefits paid in certain situations under state paid family and medical leave (PFML) programs, along with the related reporting requirements. The guidance had an effective date of January 1, 2025, but calendar year 2025 was a transition period for enforcement and administration.
The IRS has now extended that transition period to cover calendar year 2026 for states and employers with respect to the portion of medical leave benefits a state pays to an employee that is attributable to employer contributions [Notice 2026-6, 2026-2 IRB 313].
Colorado had previously announced that it was changing the tax treatment of certain PFML benefits and contributions to comply with the IRS guidance. After the IRS issued the extension, Colorado clarified that it will continue operating under its existing federal tax treatment [Colorado Department of Labor and Employment, Family and Medical Leave Insurance Program (FAMLI), IRS Extends Paid Leave Tax Timeline, 12-22-25].
Employers and third-party administrators participating in the Colorado PFML program do not need to make changes to payroll systems, employer reporting, or federal tax filings related to PFML benefits.
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Lia Coniglio, Esq., is Managing Editor of PayState Update and Senior Manager of State Payroll Information Resources for PayrollOrg.