Is Paid Family Leave Taxable? Federal, State, and CA PFL Rules

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Meta Description: Paid family leave is taxable federally. California PFL is taxable federal but not state. Learn how PFL benefits are taxed in 2025.

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      "text": "Paid family leave (PFL) benefits are taxable as income at the federal level. At the state level, taxation varies: California PFL is not taxable by California but is taxable by the federal government. New York PFL is taxable by both federal and state. Most other states with PFL programs follow federal tax treatment. Your employer may or may not withhold taxes from PFL payments depending on the program. You'll receive a Form 1099-G or W-2 reporting the benefits, which you must include on your tax return."
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H1

Is Paid Family Leave Taxable?

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ANSWER SECTION

Paid family leave (PFL) benefits are taxable as ordinary income at the federal level in 2025. At the state level, taxation varies significantly by program: California PFL is not taxed by California but is taxed by the federal government; New York PFL is taxable by both federal and state; and most other state PFL programs follow federal tax treatment. The way benefits are paid determines tax withholding—employer-paid benefits typically have taxes withheld, while state program benefits (like California's EDD payments) generally do not have taxes withheld, meaning you may owe taxes when you file. You'll receive either a Form 1099-G or Form W-2 documenting the benefits, which must be reported on your tax return.

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H2: Federal Tax Treatment of Paid Family Leave

IRS position: Paid family leave benefits are generally taxable as ordinary income at the federal level.

Taxable regardless of source:

• State PFL program benefits (California, New York, New Jersey, etc.)
• Employer-provided PFL benefits
• Private insurance PFL benefits
• Short-term disability converted to family leave

Forms you'll receive:

• Form 1099-G: For state PFL programs (reported as unemployment compensation)
• Form W-2: For employer-paid PFL (reported as wages)
• Form 1099-MISC or 1099-NEC: For some private insurance payments

No special tax rates: PFL benefits are taxed at your ordinary income tax rate based on your total taxable income for the year.

Estimated tax implications: If taxes aren't withheld from your PFL payments, you may need to make quarterly estimated tax payments or adjust your withholding at work to avoid underpayment penalties.

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H2: California PFL Tax Treatment

California has unique tax treatment for PFL:

Federal taxation:

• California PFL benefits are taxable by the IRS
• Reported on federal Form 1040
• No federal tax withheld from EDD payments
• Plan for federal tax liability when filing

California state taxation:

• California PFL benefits are NOT taxable by California
• Excluded from California adjusted gross income
• One of the few states that exempts its own PFL from state tax

Withholding options:

• EDD does not withhold federal taxes from PFL payments
• You can request voluntary federal withholding (10%)
• Request withholding when filing your claim or via SDI Online

W-2 and 1099-G:

• You'll receive a 1099-G from EDD showing benefits paid
• No California tax liability on these amounts
• Must still report on federal return

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H2: New York PFL Tax Treatment

New York PFL has different tax treatment:

Federal taxation:

• NY PFL benefits are taxable by the IRS
• Reported on federal Form 1040

New York state taxation:

• NY PFL benefits are taxable by New York State
• Unlike California, New York does not exempt its PFL from state tax

W-2 reporting: NY PFL benefits are typically reported on Form W-2 with specific codes:

• Reported in Box 14 with code "NYPFL"
• Box 1 (wages) may or may not include PFL depending on employer handling

Tax withholding: Employers may withhold federal and state taxes from NY PFL benefits, but it's not required. Check your pay stubs and W-2.

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H2: Other State PFL Programs

Several states have PFL programs with varying tax treatment:

State	Federal Tax	State Tax	Notes
California	Yes	No	CA exempts its own PFL
New York	Yes	Yes	Taxed by both
New Jersey	Yes	Yes	Follows federal
Rhode Island	Yes	Yes	Follows federal
Massachusetts	Yes	Yes	Follows federal
Connecticut	Yes	Yes	Follows federal
Oregon	Yes	Yes	Follows federal
Colorado	Yes	Yes	Follows federal
Washington	Yes	No state income tax	Federal only

Most common pattern: Taxable by both federal and state governments, with California being the notable exception for state tax purposes.

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H2: How to Report PFL on Your Tax Return

Federal reporting:

For Form 1099-G recipients (most state programs):

• Report on Schedule 1, Line 7 (Unemployment compensation)
• Even though it's not unemployment, this is where PFL typically goes
• Transfer to Form 1040

For Form W-2 recipients (employer-paid PFL):

• Report as wages on Form 1040
• Already included in Box 1 wages (usually)

For self-employed with private insurance:

• Report on Schedule 1, Line 8r (Other income)

State reporting:

• California: Exclude from state return (subtract from federal AGI)
• New York and most other states: Include in state taxable income

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H2: Tax Planning for PFL Benefits

Withholding considerations:

• If receiving CA PFL without withholding, set aside ~15-25% for federal taxes
• Consider increasing regular paycheck withholding to cover PFL tax liability
• Request voluntary withholding if available (10% federal for CA PFL)

Estimated taxes: If PFL represents substantial income without withholding, you may need to make quarterly estimated tax payments using Form 1040-ES.

Safe harbor rule: You can avoid underpayment penalties if you pay:

• 90% of current year tax liability, OR
• 100% of prior year tax liability (110% if AGI > $150,000)

Documentation:

• Keep all 1099-G and W-2 forms
• Track when benefits were received
• Document any tax withholding

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H2: Related Tax Questions

Learn about California's SDI tax that funds PFL in our guide on California SDI tax covering the 1.1% payroll tax rate for 2025.

Understand New York's PFL program in our guide on what is NY PFL with the 0.373% employee contribution rate.

Explore general SDI tax information in our guide on what is SDI tax covering state disability insurance programs.

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