IRS: No tax and reporting for state paid family, medical leave benefits in 2026

On December 19, 2025, the Internal Revenue Service (IRS) announced that it extended the grace period for employers and states to report tax information about state paid family and medical leave (PFML) benefits. Like last year, 2026 is included in the transition period to give states and employers time to configure their reporting and other systems and to help an orderly transition to compliance with state PFML rules.

Therefore, for 2026, employers and states won’t have to comply with tax and income reporting obligations related to those benefits.

Under IRS Revenue Ruling 2025-4, employers are to include, in an employee’s gross income, amounts paid to an employee under a state’s PFML program. These are seen as wages for federal employment tax purposes. For 2025, however, states and employers didn’t have to comply with the employment tax reporting requirements.

The IRS has now said, “States may need additional time to make the necessary changes to their systems and state budgets to comply with their federal income tax and employment tax obligations, as well as related information reporting responsibilities…. For this reason, calendar year 2026 will be regarded as an additional transition period for purposes of IRS enforcement and administration.”

This grace period doesn’t apply if employers voluntarily pay an employee’s required PFML contribution. Employers must still consider those amounts as wages and report them on Forms W-2.

This IRS announcement applies to state leave laws where employers and employees must make contributions to the state’s PFML fund operated and administered by the state. Employers with employees in these states must withhold and remit contributions from each applicable employee’s wages to the state. The state collects these contributions from employers and deposits them into the PFML fund to give PFML benefits to individuals covered by the related state law.

Employers may have a private plan for the payment of PFML benefits. Employers with private plans must submit the plans for state approval. The plans must provide employee benefits that are comparable to those required under the PFML law. Employers must provide the benefits at a cost to employees that doesn’t exceed what the PFML law requires.

Key to remember: Employers with employees in states with paid family and medical leave laws won’t have to comply with federal tax and income reporting obligations in 2026 when it’s related to these leave benefits.