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Benefits provided to employees under a New York paid family leave law that takes effect in January will be treated as taxable nonwage income that must be included in federal gross income, the state tax agency said.
The state family leave program, enacted in 2016, has tax implications for New York employees, employers, and insurance carriers, including self-insured employers, employer plans, approved third-party insurers, and the state insurance fund, the Department of Taxation and Finance said in an Aug. 25 notice ( N-17-12).
The law covers private-sector and public employees. The benefits will be funded by payroll deductions earmarked for a temporary disability fund in the state workers’ compensation insurance system.
California, New Jersey, Rhode Island, Washington, and the District of Columbia also offer paid family leave. Gov. Andrew M. Cuomo (D) has called his state’s program the broadest in the U.S.
The New York benefit will be phased in over four years, starting in 2018 at eight weeks of leave capped at 50 percent of the average salary in the state and coming into full force in 2021 with 12 weeks of leave and a 67 percent salary replacement cap.
It covers new parents, employees caring for a sick close relative, and employees with a family member called up for military duty.
In the tax notice, the New York agency said that its guidance is based on review of the state law, implementing regulations, other laws, case law, and federal guidance, as well as consultation with the IRS.
Taxes on family leave benefits won’t be automatically withheld from benefits, but employees can request voluntary tax withholding, the department said. Premiums will be deducted from employees’ after-tax wages.
Employers should report employee contributions on Form W-2 using Box 14 (state disability insurance taxes withheld), the department said. The state insurance fund should report benefits Form 1099-G, and other payers should use Form 1099-MISC.
The guidance is intended to help employees, employers, and insurance carriers to implement the new law, but they still are responsible for consulting with a tax advisor on how to go about it, the department said.
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