The IRS has issued new tax guidance that will impact employers in Massachusetts. Starting on January 1, 2026, DFML and employers participating in state-run Paid Family and Medical Leave (PFML) programs must comply with new IRS tax and reporting requirements.
- Certain portions of medical leave benefits will be treated like third-party sick pay (wages) starting on January 1, 2026.
- Employers who are required to pay medical leave contributions will be responsible for remitting the employer share of FICA (Social Security and Medicare) and FUTA (federal unemployment) taxes on certain medical leave benefit payments made to employees on or after January 1, 2026. These employers will also be responsible for reporting the taxable portion of medical leave benefits on the employee’s W-2.
- The Department of Family and Medical Leave (DFML) will provide employers with a Daily Sick Pay Report in the employer portal, which will include the amount of medical leave payments and taxes withheld. DFML does not determine an employer’s tax liability, but the information provided on the Daily Sick Pay Report will be sufficient to transfer to the employer any tax liability incurred as a result of any benefits being considered taxable third-party sick pay and wages by the IRS.
- Employers must have access to the employer portal in order to receive this important tax-related information. Employers should also ensure that their payroll team, and the appropriate personnel or entities, have access to the employer portal. Learn how to create a Leave Administrator account on the employer portal.
- Employees may choose whether to have state and federal income taxes withheld on medical and family leave benefits.
- There is no change in the treatment of family leave benefits. These benefits will be reported to employees and the IRS on Form 1099-G.
Massachusetts employers should read the full memo for important information and details.