Tax Regulations
To comply with Delaware Paid Leave regulations and the private PFMLI plan, it is important to understand the various rules regarding the taxation of benefits and the obligations of employers and employees.
Premium Contributions
Delaware's current premium contribution rate for Delaware Paid Leave and American Fidelity's private Delaware Paid Leave plan is 0.8% of gross employee wages. The employer must pay at least 50% of the total contribution amount, and the remainder is deducted from the employee via payroll deduction.
Taxation of Benefits
The Internal Revenue Service (IRS) has not provided specific guidance regarding the taxation of paid leave benefits from state or private plans. However, existing federal guidance on similar benefits offers some insights into how these benefits should be treated for tax purposes.
Based on our interpretation of this federal guidance, the tax implications of paid leave benefits depend on the reason for the leave:
- Family leave and leave taken for qualifying military exigencies are considered fully taxable income to the employee taking the leave.
- Medical leave benefits are taxed based on the employer's contribution percentage towards the total premium rate.
As a result, employees who receive medical leave benefits may pay more taxes if they work for an employer that pays a premium exceeding 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.