Tax Regulations
To comply with the regulations for FAMLI, and the private FAMLI plan, it is important to understand the various rules and guidance regarding the taxation of benefits and employer and employee obligations.
Premium Contributions
In Colorado, the current premium contribution rate for FAMLI, and American Fidelity’s private FAMLI plan, is 0.9% of gross employee wages, with the employer required to pay at least 50% of the total contribution amount and the remainder being deducted through employee payroll deduction. While premium contribution amount should be based on the employees’ gross (pre-tax) wages, current guidance suggests that the amount should be deducted from employees’ pay on an after-tax basis.
Taxation of Benefits
The Internal Revenue Service (IRS) has not provided direct guidance on how state or private plan FAMLI benefits are taxed, but other guidance provides insight into how these benefits should be treated for tax purposes.
Based on our interpretation of existing federal guidance for similar benefits, the reason for paid leave determines whether the benefits received are considered federal taxable income:
- Family leave, safe leave/personal protected leave, and qualifying military exigency leave are fully taxable to the employee taking leave
- Medical leave benefits are taxable based on the percentage the employer pays of the total contribution rate
Because benefits are taxed in this way, employees may pay more in taxes for medical leave benefits they receive if they work for an employer who pays more premium than the minimum requirement of 50%.
Third-Party Sick Pay Reporting
Some paid leave benefits for an employee’s own serious health condition are considered third-party sick pay, which makes American Fidelity a third-party payer of sick pay. As an employer, you are responsible for reporting all sick pay benefits paid by third parties on Form W-2 and employment tax forms. To adhere to third-party sick pay reporting requirements, employers must report the entire amount of PFMLI benefits paid to an employee during their leave due to their serious health condition. This data must be reported on the employee’s Form W-2 for the year in which the benefits were paid.
Employee Income and FICA Tax
American Fidelity will withhold federal and state income taxes from PFMLI taxable benefits that are considered third-party sick pay to the extent required, including the employee’s portion of FICA tax. The employer is responsible for remitting any additional state, local or federal taxes, and completing any required W-2 reporting. Please consult an attorney or tax professional regarding your specific situation.
While the IRS has not provided definitive guidance, for medical leave benefits, the employer paid portion of the taxable benefit is subject to FICA and reported on Form W-2, unless the employer paid portion of the contribution is taxed as wages (imputed to the employee’s wages). We will provide third-party sick pay reporting to employers so they can properly report and prepare Form W-2 for their employees. Employers are responsible for all W-2 reporting.
American Fidelity will send a Form 1099-MISC directly to employees for all non-medical leave benefits by the end of January. If an employee has not received their appropriate tax forms by the second week of February, they should contact us through their online account or call 800-662-1113.
All employers and employees should consult their own tax advisors regarding the tax consequences of PFMLI contributions and benefits.