Federal Tax Treatment of State PFML Benefits: 1099-G and Reporting

The federal tax treatment of state PFML benefits depends on which kind of leave you took. Family leave (bonding with a new child or caring for a relative) is fully taxable as federal income, though not subject to Social Security or Medicare. Medical leave (your own serious health condition) is split: the portion funded by your own payroll contributions is tax-free, and the portion funded by your employer’s contributions is taxed as ordinary income and hit with FICA. The IRS drew this line in Revenue Ruling 2025-4, and it drives everything else on your return.¹

Why State PFML Payments Are Taxable at All

Federal gross income covers income from any source unless a specific exclusion applies. There is a general welfare exclusion for government payments, but it only covers payments based on individual or family need, such as income level or disability status. State PFML programs don’t qualify, because eligibility turns on your work history and payroll contributions rather than financial need. The IRS confirmed that analysis in Notice 2023-56.²³

If your state exempts these benefits from state income tax, that has no bearing on the federal side. The taxable portion gets added to your other income and taxed at ordinary rates.

Family Leave: Fully Taxable, No FICA

Every dollar of family leave benefit is included in your federal gross income, regardless of whether the money came from your contributions, your employer’s, or a mix. Income tax applies at your regular rate.

These payments are not treated as wages for employment tax purposes, so no Social Security, Medicare, or federal unemployment tax comes out of them.¹ Compared with a regular paycheck, that saves roughly 7.65%.

Medical Leave: Split by Funding Source

Medical leave is where the ruling gets more useful, and where filers most often overpay.

The share of your medical leave benefit attributable to your own payroll contributions is excluded from federal gross income entirely under the tax code’s rules for accident and health insurance. It’s not subject to income tax and not subject to FICA.¹

The share attributable to your employer’s contributions is different. It’s included in gross income and treated as third-party sick pay, which means federal income tax applies and both Social Security and Medicare taxes apply.¹ The state agency paying the benefit is responsible for withholding the employee share of FICA on that portion.

The split between employer and employee premiums varies by state, so the taxable slice of a medical leave benefit isn’t the same everywhere. You’ll need your state’s published premium allocation percentages to figure out how much of your benefit falls into which bucket.

How Payroll Taxes Apply

Family leave: federal income tax only. No Social Security, Medicare, or FUTA.
Medical leave, employee-funded portion: none of the above. Completely tax-free.
Medical leave, employer-funded portion: federal income tax plus Social Security and Medicare, because the IRS treats it as third-party sick pay.¹

Your Own Contributions to the Program

Mandatory employee PFML contributions are withheld from your paycheck after tax. They’re part of your gross wages, and they’re subject to federal income tax, Social Security, and Medicare when they come out. There’s no federal deduction for them on Schedule A or anywhere else. The payoff for having paid in shows up later: it’s what makes the employee-funded portion of any medical leave benefit come back to you tax-free.

The 1099-G You’ll Receive

Your state agency will send a Form 1099-G reporting the total paid leave benefits paid during the year. The IRS instructions direct states to file a separate 1099-G for governmental paid family leave program payments, with the total gross amount in Box 1 and any federal tax withheld in Box 4. Some states use Form 1099-MISC instead if the payment doesn’t fit the unemployment compensation category on the 1099-G.⁴

States generally mail these by January 31 and post them in the online leave account. If yours hasn’t shown up by mid-February, check the portal or call the agency.

A wrinkle for medical leave: the 1099-G may report the full gross benefit even though part of it is excludable. You’ll need to calculate the excludable portion yourself using your state’s premium split. Keep pay stubs and any state documentation showing how the benefit was funded.

Withholding During Leave

State PFML programs don’t automatically withhold federal income tax from family leave payments. To have tax taken out, submit IRS Form W-4V (Voluntary Withholding Request) to your state’s leave agency, not to the IRS.⁵ For payments treated like unemployment compensation, which covers most family leave benefits, the withholding rate is 10%.⁶ Some states have their own request form that does the same job.

Ten percent isn’t enough if your household sits in a higher bracket. In that case, estimated tax payments are the better route.

Estimated Tax Payments

If you skip voluntary withholding and your leave runs several months, you can end up owing a big balance at filing time plus an underpayment penalty. Estimated quarterly payments are generally required if you expect to owe $1,000 or more after withholding and refundable credits, and your withholding won’t cover the smaller of 90% of your current-year tax or 100% of last year’s tax.⁷

For 2026, the quarterly due dates are April 15, June 15, September 15, and January 15, 2027.⁸ You can skip the January payment if you file your return and pay the full balance by February 1, 2027. Use Form 1040-ES to calculate and submit each payment. If your leave only covered part of the year, the annualized installment method lets you match payments to when the income actually arrived.⁷

How to Report PFML Benefits on Your Return

Family leave benefits from your 1099-G go on Line 7 of Schedule 1 (Form 1040), the same line used for unemployment compensation.⁹ The total flows to your Form 1040 and joins your other income. Any federal tax withheld (Box 4 of the 1099-G) gets added to your other withholding in the payments section of Form 1040.

For medical leave, only the employer-funded portion is reported as income. The employee-funded portion stays off the return. If the 1099-G shows the full gross amount without breaking out the split, calculate the employee-funded piece using your state’s premium allocation percentages and subtract it before entering the taxable amount on Schedule 1.

Enter the payer’s identification number from the 1099-G exactly as printed. The IRS matches these automatically, and a bad number can hold up your return or generate a notice.

If Your 1099-G Is Wrong

If the amount reported doesn’t match what you actually received, ask the state’s leave agency for a corrected form. If the correction is slow, don’t stall your filing. The IRS says to file an accurate return reporting only the income you actually received, even without the corrected form in hand.¹⁰ Keep your payment records and any correspondence with the agency.

Penalties for Skipping It

Leaving taxable PFML benefits off your return has the same consequences as any other unreported income. The accuracy-related penalty for underpayment is 20% of the tax you should have paid, and interest accrues on the unpaid balance from the original filing deadline.¹¹ Because the IRS gets a copy of every 1099-G, mismatches almost always surface in automated matching, and the notice typically lands six to twelve months after filing with the extra tax, penalty, and interest already calculated.

Treat the 1099-G like a W-2: if you got one, report it. The medical leave exclusion is worth doing carefully, but the risk runs one way. Reporting too much costs you a refund delay. Reporting too little brings a bill with interest attached.

1
Internal Revenue Service. Revenue Ruling 2025-4
2
Internal Revenue Service. IRS Notice 2023-56 – Federal Income Tax Consequences of Certain State Payments
3
Internal Revenue Service. IRS Issues Guidance on State Tax Payments
4
Internal Revenue Service. Instructions for Form 1099-G
5
Internal Revenue Service. Form W-4V, Voluntary Withholding Request
6
Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source
7
Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
8
Internal Revenue Service. 2026 Form 1040-ES, Estimated Tax for Individuals
9
Internal Revenue Service. 2025 Schedule 1 (Form 1040)
10
Internal Revenue Service. What to Do When a W-2 or Form 1099 Is Missing or Incorrect
11
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments