Paid Family Medical Leave Benefit on 1099-G

[Joe Carter]

Is the Paid Family Medical Leave Benefit on 1099-G Box 1 taxable?

[qbteachmt]

State FML is treated the same as Unemployment, and both are in Box 1.

"Box 1. Unemployment Compensation

Enter payments of $10 or more in unemployment compensation, including Railroad Retirement Board payments for unemployment. If you make payments from a contributory program that has been deemed to be in the nature of unemployment compensation, such as California's Family Temporary Disability Insurance payments or governmental paid family leave program payments, file a separate Form 1099-G for payments from each contributory program. Enter the total amount before any income tax was withheld. If you withhold federal income tax at the request of the recipient, enter it in box 4; see the instructions below."

[Joe Carter]

From what I've read the IRS hasn't made the determination if it's taxable on the federal level.  Is that true.

[qbteachmt]

When the State pays FML it is treated the same as UEI and reported in 1099-G Box 1. Last year Congress exempted the first $10,200 of UEI from taxation. The State doesn't make that determination, nor does the IRS. Your State might have different rules.

[qbteachmt]

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

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