On January 22, the Internal Revenue Service (IRS) issued guidance on how employers should deal with the tax requirements of contributions and benefits paid under state paid and family leave programs. The guidance comes in Rev.Rul. 2025-4.

Rev.Rul.2025-4 clarifies how paid leave program contributions and benefits interact with federal employment and income tax rules. Generally, the guidance states that employer contributions to a state paid leave program are excluded from an employee’s gross income and are not subject to FICA, FUTA or federal income tax withholding. Employee contributions will be treated as after-tax contributions. If the employer makes the employee contribution for the employee, the contribution will be treated as additional compensation subject to normal income tax rules.

The Revenue Ruling makes clear that employers are obliged to include taxable amounts in their workers’ Forms W-2 (and other tax forms).

Prospects: This guidance is subject to review by the Trump Administration and therefore could change. However, the guidance conforms to usual tax principles and Washington insiders believe the Trump Administration will not change it.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.