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The IRS recently released guidance (Notice 2026-6) (PDF - 101 KB) extending the 2025 calendar year transition relief regarding certain tax treatment requirements for state paid family and medical leave (PFML) benefits, originally provided by Revenue Ruling 2025-4, through calendar year 2026.
Revenue Ruling 2025-4 clarified the income and employment tax treatment of state PFML benefits, particularly where benefits are funded in part by employer contributions. The ruling addressed how such benefits should be treated for federal income tax withholding, employment tax purposes, and information reporting, and it acknowledged that existing federal tax rules do not squarely align with certain states’ PFML laws. Recognizing the operational complexity for states and employers, the ruling included a limited transition period for calendar year 2025 under Holding 4 of the ruling.
Notice 2026-6 builds directly on that framework by extending the transition period through calendar year 2026 for certain requirements described in Holding 4 of Rev. Rul. 2025-4. The IRS effectively concluded that states and employers need additional time to adapt payroll systems, reporting processes, compliance workflows and other systems before full enforcement of the new rules.
Specifically, for medical leave benefits paid by a state in calendar year 2026, to the extent the benefits are attributable to employer contributions, the Notice provides that neither the state nor the employer is required to apply the income tax withholding or information reporting rules that normally apply to third-party sick pay. As a result, no penalties will apply under Sections 6721 or 6722 for failures to file correct information returns or furnish correct payee statements with respect to those amounts during 2026. This relief mirrors the approach taken for 2025 and preserves consistency during the extended transition period.
In addition, the Notice extends relief from employment tax compliance obligations for those same employer-funded medical leave benefits paid in 2026. During the transition year, states and employers are not required to comply with Section 321 and related income tax withholding provisions, or the parallel rules under Section 3306 for FUTA purposes. Correspondingly, they are not required to withhold or pay associated employment taxes on those amounts, and no penalties will apply for failures to do so during the transition period.
Grant Thornton insight:
From an employer perspective, Notice 2026-6 provides valuable breathing room, but it should not be viewed as a signal to defer planning. Employers operating in states with PFML programs should use 2026 to work closely with payroll providers, benefits administrators and state agencies to understand how employer contributions are tracked, how benefits are characterized and what system changes will be required once the transition period expires.
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