The New York State Department of Taxation and Finance has issued official guidance on several taxability issues relating to the New York Paid Family Leave Law (“PFLL”), which goes into effect on January 1, 2018. Among other details addressed, employee contributions under the PFLL shall be made on an after-tax basis, and benefits paid to employees shall be treated as taxable non-wage income.

As we previously reported, the New York Workers’ Compensation Board in July adopted final regulations for implementation of the PFLL. The law provides a phased-in system of paid, job protected leave for eligible employees: (i) to care for a new child following birth, adoption, or placement in the home; (ii) to care for a family member with a serious health condition; or (iii) for qualifying exigencies related to military duty. Paid family leave (“PFL”) benefits will be funded entirely by employee payroll contributions, with an employee’s contribution level based on a percentage of his or her weekly wage, up to a maximum statutory cap.

Since the final regulations did not address taxability concerns, questions remained as to how both employee payroll contributions and PFL benefits would be treated for tax purposes. The notice addresses several issues in this regard, namely:

  • Employee contributions to PFL benefit premiums will be deducted from employees’ after-tax wages.
  • PFL benefits paid to employees will be taxable non-wage income that must be included in federal gross income.
  • Taxes will not automatically be withheld from benefits, but employees can request voluntary tax withholding from PFL benefits paid.

With regard to reporting, the guidance provides that: (1) employers should report employee payroll contributions on Form W-2 using Box 14 – State disability insurance taxes withheld; and (2) PFL benefits paid to employees should be reported on Form 1099-MISC.

We will continue to report on further developments in the lead up to the PFLL’s effective date.