Contributed by: BarbaraL, FreeTaxUSA Agent, Tax Pro
Taking time off for the delivery of a new baby or to care for a family member? You might get money from Paid Family Leave (PFL) or Family Leave Insurance (FLI). No surprise—this income can affect your taxes.
Don’t worry! In this article, we’ll explain what PFL and FLI are, if you need to pay taxes on them, and how FreeTaxUSA’s simple tools guide you through entering these items correctly in your tax return. Let’s make taxes less scary!
What are PFL and FLI?
Paid Family Leave (PFL) is paid time off you receive for bonding with a new child or caring for a sick relative.
Family Leave Insurance (FLI) is how the PFL is funded, typically through a low rate of tax or insurance withheld from employee wages.
Nine states—California, New Jersey, New York, Massachusetts, Washington, Oregon, Rhode Island, Connecticut, and Colorado—have active programs. Delaware, Maryland, Maine, and Minnesota plan to launch theirs in 2026–2028.
Federal tax rules
There’s no federal PFL program—only the Family and Medical Leave Act (FMLA), which offers unpaid leave.
However, the IRS requires you to report PFL and FLI benefits as taxable income on your federal tax return. For this reason, payers of the benefits are required to report them to you on either Form W-2 or Form 1099-G. For more information on IRS rules, see IRS Publication 525.
For instance, if you receive Colorado’s PFML benefits, you’ll owe federal taxes on this income, and it will be reported to you by Colorado on a Form 1099-G. FreeTaxUSA’s software helps you enter these forms with clear, step-by-step prompts, avoiding costly mistakes.
State tax and withholding rules
Tax rules vary across the nine active states, and employers play a key role in reporting taxable benefits and making sure the required tax is withheld and reported to you at the end of the year for tax reporting.
- California: PFL (SDI-funded, 1.1% payroll tax, max $1,693.96/year) is not state-taxable. Employers withhold only federal taxes.
- New York: PFL (employee-funded via private insurance, 0.373% tax, max $418.70/year) is not state-taxable, but federally taxable.
- New Jersey: FLI (TDI-funded, 0.09% employee tax, max $165.06/year) may be state-taxable for higher earners. Employers share withholding duties.
For other active states—Massachusetts, Washington, Colorado, Oregon, Rhode Island, and Connecticut—PFML programs are typically funded by a combination of employer and employee payroll taxes. Whether benefits are state-taxable depends on state-specific thresholds and reporting rules.
States like Maryland, Delaware, Maine, and Minnesota are expected to launch similar programs between 2026 and 2028. Confusion between unpaid federal FMLA and state-level paid leave is common, especially in states with newer programs.
Filing with confidence
No federal PFL law exists despite public demand and failed proposals like Build Back Better. In the nine active states, employers (payers of the benefits) withhold taxes (e.g., CT’s 0.5% employee tax), and then are required to issue to you an accurate W-2 or 1099-G by January 31 of the following year.
FreeTaxUSA streamlines your reporting of these documents with easy-to-follow prompts, helping make it easy and budget-friendly for taxpayers to file correctly, even in states with complex rules.