As a holiday gift to employers, the IRS has released Notice 2026-6 on December 19th, which extends the transition period for certain federal tax and reporting requirements related to State Paid Family and Medical Leave (PFML) programs through calendar year 2026. This extension gives employers and states extra time to update payroll and reporting systems to comply with new federal rules from Revenue Ruling 2025-4.
Under these rules, medical leave benefits paid by a state to employees—when funded by employer contributions—are considered taxable income and wages for federal employment tax purposes. However, for 2026, states and employers are not required to follow the usual income tax withholding and reporting requirements for these payments and will not face penalties for noncompliance.
It’s important to note that this relief does not apply to employer “pick-up” contributions (when an employer pays an employee’s required PFML contribution). These amounts must still be treated as wages and reported on Form W-2. Employers should use this additional time to prepare for full compliance by 2027 and consult with their payroll providers and tax advisors for guidance.
If you have any questions on this guidance, please contact any member of our Employee Benefits Team.
