The New York State Paid Family Leave Law (PFL) will go into effect on January 1, 2018, requiring virtually all private employers in New York to provide paid family leave benefits to eligible employees. As employers begin the complicated process of complying with the PFL, including taking payroll deductions from employees (as employers were permitted, but not required, to do beginning July 1, 2017), the New York State Department of Taxation and Finance (DTF) finally released guidance on the tax implications of PFL benefits and contributions.

Specifically, after consulting with the Internal Revenue Service and other resources, the DTF has directed that employee contributions will be deducted from employees’ after-tax wages, and that employers should report such contributions on Forms W-2 using Box 14.

With respect to PFL benefits, the DTF guidance indicates that such benefits will be treated as taxable nonwage income that must be included in federal gross income. While taxes will not automatically be withheld from PFL benefits, employees can elect to request voluntary tax withholding. Finally, the DTF guidance also provides that all benefits paid to employees should be reported on Form 1099-MISC, with the exception of those paid by the state insurance fund, which should be reported on Form 1099-G.

As deadlines for complying with the PFL approach, we will be closely monitoring this law and reporting further developments.