MDOL Issues Changes to PFML Law Regarding Taxability of Benefits
We continue to stay closely involved with the many updates to Maine's Paid Family & Medical Leave law. Recently, MDOL updated its PFML FAQ document to clarify how Paid Family & Medical Leave benefits will be taxed. These updates appear in FAQs #15 and #16 and are based in part on recent IRS guidance.
Under the new guidance, family leave benefits are taxable income, but they are not treated as wages. Employees may opt for voluntary state and federal tax withholding, and the program administrator will issue a Form 1099-G at year end.
Medical leave benefits depend on who pays the PFML premiums. When employees pay all of the premiums, medical leave benefits are not taxable. This generally applies to employees of employers with fewer than 15 employees, since those employers are exempt from the employer tax share under the law.
When the tax is shared between the employee and employer, only the portion tied to the employer’s contribution is taxable as wages and subject to Social Security and Medicare taxes. For employers with 15 or more employees, this generally means about half of an employee’s medical leave benefits will be taxable. In those cases, employees will receive a Form W-2 and may elect voluntary income tax withholding.
MDOL also clarified in FAQ #16 that employers are not responsible for calculating or paying payroll taxes on the taxable portion of PFML benefits. During the initial phase of the program, the department will handle payroll tax payments and required tax forms on behalf of employers, though it notes this approach could change in the future.
Additionally, MDOL recently received an actuarial report reviewing the anticipated solvency of the state PFML fund. We are still reviewing the details and plan to provide comments to the PFML Authority ahead of its January meeting.
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