Compliance
Reporting PFML Benefits: What US Employers and States Must Know in 2026
Declaring medical leave benefits from State PFML programs as wages and income becomes mandatory in 2026—this article explains the recent extension and practical compliance actions.
By NomadicTax Research Team • 5-8 min read • March 7, 2026
## Background: Revenue Ruling 2025-4 & Transition Period
- **Revenue Ruling 2025-4**, issued January 15, 2025, set rules on the tax treatment of State PFML programs. Under Holding 4, **medical leave benefits paid by States attributable to employer contributions** are to be treated as taxable wages, subject to Federal employment tax withholding, return reporting, and inclusion for income tax purposes. ([irs.gov](https://www.irs.gov/irb/2026-02_IRB?utm_source=openai))
- **Notice 2026-6**, released in early 2026, **extends the transition period** for compliance with those rules through **calendar year 2026**. The extension allows States and employers more time to set up systems and processes. ([irs.gov](https://www.irs.gov/irb/2026-02_IRB?utm_source=openai))
## What Employers and States Need to Do by End of 2026
- **Recognize employer contributions**: Any employer-paid portion of PFML programs paid by the State must be considered **wages** for FICA, FUTA, and income tax withholding purposes.
- **W-2 reporting required**: Amounts attributable to employer contributions must be included on employees’ Forms W-2 for tax year 2026.
- **Update payroll systems**: Ensure payroll software can distinguish between employee-paid and employer-attributable contributions.
- **Review State PFML laws**: States with statutory employer contributions must assess whether contributions are remitted by employers or deducted—this influences when taxable treatment kicks in.
## Risks of Non-compliance
- Subject to failure-to-file or reporting penalties for misclassifying wages.
- Retroactive tax liability, interest, and possibly underpayment penalties if employer contributions are not properly treated.
- Employee confusion or disputes if W-2s exclude items employees believe should have been included.
## Example Application
Suppose in State X, the law mandates that employers remit a PFML contribution of $200 per employee per pay period. Under Revenue Ruling 2025-4 and starting with tax year 2026, that $200 must be added to employees’ taxable wages. If an employee has two pay periods/month, $200 × 24 = **$4,800** will be reported as wages and subject to income tax withholding, FICA, etc.
If payroll systems are unprepared, you'd see mis-withheld taxes, incorrect employee pay-stub summaries, and issues with annual reporting.
## Action Plan Checklist
- Run system audits by mid-2026 for PFML contribution classifications.
- Train HR and payroll staff on new reporting obligations.
- Coordinate with software vendors to ensure functionality is updated.
- Communicate with employees about the change and why PFML benefits may feel different (- higher taxable income but compliant).
## Takeaway
The 2026 deadline marks the end of the transition—employers and States must ensure that employer contributions for medical leave in PFML programs are treated as taxable wages and properly reported. Advance preparation will save errors and penalties.