Yes, paid family and medical leave benefits are taxable at the federal level, but how much of your check counts as taxable income depends on whether you are on family leave or medical leave and, for medical leave, who paid the premiums. Revenue Ruling 2025-4 set the current federal framework, and a 2026 transition notice temporarily eases how states withhold and report these payments.1Internal Revenue Service. Internal Revenue Bulletin 2025-07 State income tax treatment is a separate question and varies by jurisdiction.
Family Leave Benefits Are Fully Taxable
If you receive payments while bonding with a new child or caring for a seriously ill family member, that money is taxable federal income. The paying state agency reports it on Form 1099-G, the same form used for unemployment compensation.2Internal Revenue Service. Instructions for Form 1099-G Because you are not receiving the money for your own injury or illness, none of it qualifies for the health-insurance exclusion that can apply to medical leave.
One piece of good news: family leave benefits are not subject to Social Security, Medicare, or federal unemployment taxes. You owe federal income tax on the full amount, but there is no FICA withholding.
Medical Leave Benefits Depend on Who Paid the Premiums
Medical leave benefits, which you collect when your own serious health condition keeps you from working, get split treatment. The portion funded by your employer’s contributions is taxable. The portion funded by your own after-tax payroll contributions may be tax-free.
The Employer-Funded Portion
Revenue Ruling 2025-4 treats the share of medical leave benefits paid from employer PFML contributions as third-party sick pay.3Internal Revenue Service. Notice 2026-6 – Extension of Transition Period for Revenue Ruling 2025-4 That amount goes into your gross income and counts as wages for federal employment tax purposes, which means it is subject to both income tax and FICA. Once the transition period ends, this portion will show up on a Form W-2 rather than a 1099-G.
The Employee-Funded Portion
The share of medical leave benefits traceable to your own after-tax contributions may be excluded from gross income under Internal Revenue Code Section 104(a)(3), which covers amounts received through accident or health insurance for personal injuries or sickness, provided those benefits are not attributable to employer contributions that were excluded from your income.4Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness You already paid tax on those dollars when they were withheld from your paycheck, so the benefits they fund can come back to you tax-free.
Because most state programs split premium costs between employers and employees, a real medical leave check will usually be partly taxable and partly excludable, in the same ratio as the funding split.
What the 2026 Transition Relief Means for You
IRS Notice 2026-6 extends a transition period through the end of calendar year 2026. During that time, states paying medical leave benefits attributable to employer contributions are not required to follow third-party sick pay withholding and reporting rules, and they do not have to withhold or remit FICA on those benefits.3Internal Revenue Service. Notice 2026-6 – Extension of Transition Period for Revenue Ruling 2025-4
For you, that means your 2026 benefits may arrive with no federal tax withheld. The income is still taxable. The relief only lifts the state’s reporting and withholding duties, not your obligation to pay. If nothing is withheld, plan for estimated tax payments or extra withholding from another paycheck so you are not surprised at filing time.
State Income Taxes Vary
Thirteen states and the District of Columbia currently have enacted PFML programs, with Delaware, Maine, Maryland, and Minnesota launching or expanding programs in 2026. There is no uniform state-level rule. Some states fully exempt PFML benefits from state income tax. Others follow federal treatment and tax them as ordinary income on your state return.
State tax rules are being revised as new programs come online, so confirm your state’s current position with its Department of Revenue before filing. At the federal level, missing the reporting entirely triggers a failure-to-file penalty of 5% of the unpaid tax per month up to 25%, plus a failure-to-pay penalty of 0.5% per month up to 25%.5Internal Revenue Service. Failure to File Penalty State penalties generally follow a similar structure.
How to Report PFML Benefits
Which form you get depends on the type of leave:
- Form 1099-G reports family leave benefits, and during the 2026 transition period it also reports medical leave benefits. The total paid appears in Box 1, and any federal tax withheld appears in Box 4.2Internal Revenue Service. Instructions for Form 1099-G
- Form W-2 will report the employer-funded portion of medical leave benefits as third-party sick pay once the transition period ends.
- Form 1099-MISC may be used by some states for payments that do not fit the other categories.2Internal Revenue Service. Instructions for Form 1099-G
Report 1099-G income on Line 7 of Schedule 1 (Form 1040), which flows to Line 8 of your main return. Withholding from Box 4 of your 1099-G goes on Line 25b of Form 1040.6Internal Revenue Service. 2025 Schedule 1 (Form 1040) – Additional Income and Adjustments to Income Keep the forms for at least three years, the standard IRS audit look-back window.7Internal Revenue Service. How Long Should I Keep Records
Withholding and Estimated Tax Payments
Most state PFML programs do not automatically withhold federal income tax. To have tax taken out, submit Form W-4V (Voluntary Withholding Request) to the paying state agency, not to the IRS. For benefits treated like unemployment compensation, the flat withholding rate is 10%.8Internal Revenue Service. Form W-4V (Rev. January 2026) – Voluntary Withholding Request
If you skip voluntary withholding, quarterly estimated tax payments on Form 1040-ES may be needed to avoid an underpayment penalty. The general rule: you owe estimated taxes if you expect to owe at least $1,000 after withholding and refundable credits, and your withholding will not cover the smaller of 90% of the current year’s tax or 100% of the prior year’s tax.9Internal Revenue Service. 2026 Form 1040-ES – Estimated Tax for Individuals If you return to work partway through the year, filing a new Form W-4 asking for extra withholding at your job is another way to cover the tax on your leave income.
On the contribution side, employee PFML contributions come out of your paycheck with after-tax dollars and do not reduce your federal taxable wages. If you itemize, you may be able to deduct them as state and local taxes paid, subject to the $10,000 SALT cap.1Internal Revenue Service. Internal Revenue Bulletin 2025-07
Self-Employed Participants
Several states let self-employed workers opt in. If your state treats PFML contributions as a tax rather than a voluntary insurance premium, you can deduct the amount on Schedule C, Line 23 (Taxes and Licenses).10Internal Revenue Service. Instructions for Schedule C (Form 1040) The Schedule C instructions specifically bar deducting premiums for policies covering lost earnings due to sickness or disability on Line 15 (Insurance), so the tax-versus-premium classification matters.
Benefits you collect as a self-employed participant are generally included in gross income, just as they are for employees. Because you fund the entire benefit yourself, there may be a stronger argument for excluding medical leave benefits under Section 104(a)(3). If you deducted your contributions as a Schedule C business expense, however, that deduction can offset the exclusion. The IRS has not issued detailed guidance on every self-employment scenario, so talk to a tax professional about your specific situation.