If you really want to do the deep dive, the typical argument against taxing FMLA or State Grants is under the Welfare Doctrine. Here's a quote as an example:

https://taxnews.ey.com/news/2020-0128-state-laws-requiring-paid-family-and-medical-leave-create-ques...

"At the outset, the applicability of the general welfare exclusion to the payments must be considered. Although no statutory exclusion exists, the IRS has administratively developed a general welfare exclusion from gross income for certain payments to individuals by governmental units under legislatively-provided social benefit programs for the promotion of the public's general welfare.

To qualify under the general welfare exclusion, payments must (1) be made from a governmental fund, (2) be for the promotion of general welfare (i.e., generally based on individual or family needs such as housing, education, and basic sustenance expenses), and (3) not represent compensation for services. The IRS typically rejects the applicability of the general welfare doctrine for payments that are not means-tested (see, for example, Revenue Ruling 76-131, Revenue Ruling 2005-46). The state programs enacted thus far appear to pay benefits if the leave is taken for a specified reason, without regard to need. Moreover, the payments might be viewed as intended to replace compensation that would have been received for services, much like sick leave. As a result, it is unlikely that the IRS would view the general welfare exclusion as applicable to amounts paid from the state PFML systems."

It's subject to Fed Income tax. It's not subject to FICA, when on a 1099-G. There is some State variability, of course.

https://www.cpapracticeadvisor.com/payroll/article/21085114/is-paid-family-leave-taxable

Google is your friend.