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Benefits from Golden State's Paid Family Leave Program Are Taxable on Federal Returns

By Jamerson C. Allen and Mark R. Attwood
  • February 4, 2005

The Internal Revenue Service has ruled that the payments received under California's Paid Family Leave insurance program are taxable for federal income tax purposes. According to the IRS, Family Temporary Disability Insurance payments (also known as Paid Family Leave) are in the nature of unemployment compensation under Section 85 of the Internal Revenue Code. California's Employment Development Department must report the FTDI payments to the IRS on a Form 1099G and, for federal tax purposes, FTDI payments must be included in a claimant's gross income. The benefits, however, are not subject to California income tax under Revenue and Taxation Code § 17083 [EDD News Release 04-51, 12/14/04].

Recipients of benefits under the Paid Family Leave program received a letter with their benefits checks informing them that the IRS might consider the payments taxable income. Additional steps are being taken to notify claimants that the Forms 1099 they receive this year will reflect the taxable income.

For some, the fact that the Paid Family Leave program is employee-funded may reduce the amount of FTDI payments that must be included in the gross income of the claimant (IRS regulation 26 Code of Federal Regulations § 1.85-1(b)(1)(iii)). Claimants should contact the IRS or their tax advisor to obtain additional information.

The Paid Family Leave Program

California's Paid Family Leave program was enacted in 2002 and is part of the State Disability Insurance program covering approximately 13 million workers. Employees began contributing toward Paid Family Leave in January 2004 and became eligible to collect benefits July 1, 2004.

The program pays up to six weeks of benefits in a 12-month period to workers who take time off work to care for a seriously ill child, spouse, parent, or domestic partner, or to bond with a new child. Parents are eligible for benefits within one year of the birth, adoption, or foster care placement. Individuals cannot receive Paid Family Leave while receiving SDI, unemployment insurance, or workers' compensation benefits.

Paid Family Leave is funded through employee contributions to the SDI program. To cover the initial cost, the SDI employee contribution rate increased by .08 percent on a worker's taxable wages in 2004 and 2005. The program does not provide job protection or return rights. However, claimants may be protected under the federal Family and Medical Leave Act and the California Family Rights Act, if they have worked for their employer for a least one year, and the business has 50 or more employees within 75 miles of their work site.

Jackson Lewis California PFL Task Force

If your company has questions about PFL or the integration of PFL into its current leave management practices, please contact one of the members of our California PFL task force listed below, or the Jackson Lewis attorney with whom you regularly work.

San Francisco:

Los Angeles:

Sacramento:

  • Jennifer Brown Shaw

 

©2005 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

Reproduction of this material in whole or in part is prohibited without the express prior written consent of Jackson Lewis P.C., a law firm that built its reputation on providing workplace law representation to management. Founded in 1958, the firm has grown to more than 900 attorneys in major cities nationwide serving clients across a wide range of practices and industries including government relations, healthcare and sports law. More information about Jackson Lewis can be found at www.jacksonlewis.com.

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