June 18, 2019

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Guidance Issued on Taxability of Contributions and Benefits under New York Paid Family Leave Law

The New York State Department of Taxation and Finance has issued official guidance on several taxability issues relating to the New York Paid Family Leave Law (“PFLL”), which goes into effect on January 1, 2018.  Among other details addressed, employee contributions under the PFLL shall be made on an after-tax basis, and benefits paid to employees shall be treated as taxable non-wage income.

As we previously reported, the New York Workers’ Compensation Board in July adopted final regulations for implementation of the PFLL. The law provides a phased-in system of paid, job protected leave for eligible employees: (i) to care for a new child following birth, adoption, or placement in the home; (ii) to care for a family member with a serious health condition; or (iii) for qualifying exigencies related to military duty.  Paid family leave (“PFL”) benefits will be funded entirely by employee payroll contributions, with an employee’s contribution level based on a percentage of his or her weekly wage, up to a maximum statutory cap.

Since the final regulations did not address taxability concerns, questions remained as to how both employee payroll contributions and PFL benefits would be treated for tax purposes. The notice addresses several issues in this regard, namely:

  • Employee contributions to PFL benefit premiums will be deducted from employees’ after-tax wages.

  • PFL benefits paid to employees will be taxable non-wage income that must be included in federal gross income.

  • Taxes will not automatically be withheld from benefits, but employees can request voluntary tax withholding from PFL benefits paid.

With regard to reporting, the guidance provides that: (1) employers should report employee payroll contributions on Form W-2 using Box 14 – State disability insurance taxes withheld; and (2) PFL benefits paid to employees should be reported on Form 1099-MISC.

© 2019 Proskauer Rose LLP.

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About this Author

Evandro Gigante, Labor Attorney, Proskauer Rose Law FIrm
Senior Counsel

Evandro Gigante is a Senior Counsel in the Labor & Employment Law Department. He represents and counsels clients through a variety of labor and employment matters, including allegations of race, gender, national origin, disability and religious discrimination, sexual harassment, wrongful discharge, defamation, and breach of contract. Evandro also counsels employers in connection with reductions in force and wage-and-hour issues, and advises clients on restrictive covenant issues, including, for example, confidentiality, non-compete, and non-solicit agreements. 

212.969.3132
Laura M. Fant, Labor & Employment Attorney, Proskauer Law Firm
Associate

Laura M. Fant is an Associate in the Labor & Employment Department, resident in the New York office. She is a member of the Accessibility and Accommodations Practice Group, and frequently counsels on matters involving the Americans with Disabilities Act (ADA) and state public accommodation law, as well as disability accommodation in the workplace. She has experience conducting accessibility audits and providing ADA and accessibility training for clients in a variety of sectors, including retail, sports, and not-for-profit. Her practice also focuses on wage and hour and class and collective action litigation, and she is a frequent contributor to the Proskauer on Class and Collective Actions blog.

212-969-3631
Arielle Kobetz, Proskauer Law Firm, Labor and Employment Attorney
Associate

Arielle Kobetz is an associate in the Labor & Employment Law Department. She assists employers in a wide range of areas, including discrimination, wage and hour, and traditional labor.

Prior to joining Proskauer, Arielle served as a law clerk at the New York City Human Resources Administration, Employment Law Unit, where she worked on a variety of employment discrimination and internal employee disciplinary issues. 

212-969-3304