The New York State Department of Taxation and Finance (the “Department”) recently provided guidance regarding the taxation of contributions made under, and benefits paid under, New York State’s new paid family leave program (“Program”). After reviewing applicable law and other guidance, and after consulting with the Internal Revenue Service regarding the appropriate tax treatment of Program contributions and benefits, the Department provided the following guidance:
CONTRIBUTIONS
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Premiums paid by employees through wage deductions are to be deducted from employees’ after-tax wages; and
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Employers should report employee contributions on IRS Form W-2 using Box 14 – State disability insurance taxes withheld.
BENEFIT PAYMENTS
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Benefits paid to employees are taxable non-wage income that must be included in federal gross income;
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Taxes are not to be automatically withheld from benefit payments, but employees may request voluntary tax withholding; and
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Benefits are generally required to be reported by payers on IRS Form 1099-MISC.
While the Department’s guidance is not a surprise as it is consistent with existing tax law and regulations, it is welcome clarification.
