The IRS recently issued Revenue Ruling 2025-4 to provide guidance on the federal income and employment tax treatment of contributions and benefits paid under state-mandated Paid Family and Medical Leave (PFML) programs, as well as the related reporting requirements.

Revenue Ruling 2025-4 is in response to numerous requests to clarify the federal tax treatment of state paid leave programs that help pay employees who cannot work due to any of the reasons listed below:

1. Personal Medical needs: an employee’s own non-occupational injuries, illnesses, or medical conditions
2. Family caregiving: Caring for a family member (child, spouse, parent, etc) with a serious health condition

The revenue ruling generally provides that:

1. Employers can deduct the amount they contribute to mandatory paid family and medical leave programs as a payment of excise tax
2. Employees can deduct the amount they contribute as a payment of income tax, if the employee itemizes deductions, to the extent that the employee’s deductions for state income taxes does not exceed the state income tax deduction limitation
3. An employee who receives state paid family leave payments must include those amounts in the employee’s gross income. 
4. An employee who receives state paid medical leave payments must include the amount attributable to the employer portion of contributions in the employee’s gross income.  This amount is also subject to bother the employer and employee’s share of Social Security and Medicare taxes.  The amount attributable to the employee contribution, are excluded from the employee’s Federal gross income

In addition, the Revenue Ruling provides transition relief from the withholding, payment and information reporting requirements for state paid medical leave benefits paid during calendar year 2025.