IRS extends certain transition relief for paid family and medical leave programs

The IRS recently announced in Notice 2026-6 that it is extending, by an additional year, certain non-enforcement transition relief provided in Revenue Ruling 2025-4. Revenue Ruling 2025-4 addressed the income and employment tax treatment of contributions and benefits paid under a model state paid family and medical leave (PFML) program as well as the related reporting requirements. (For more information on Revenue Ruling 2025-4, see WTW’s Insider article, “IRS releases tax guidance on paid family and medical leave.”)

Revenue Ruling 2025-4 provided transition relief to states and employers from certain withholding, payment and information reporting requirements for state PFML benefits paid during the 2025 calendar year. Responding to requests from states administering PFML programs, the IRS is granting a one-year extension of the transition relief for medical leave benefits a state pays to an individual in calendar year 2026, with respect to the portion of the medical leave benefits attributable to employer contributions. For these particular medical leave benefits, states or employers are not required to follow the income tax withholding and reporting requirements applicable to third-party sick pay and will not be liable for any penalties resulting from failure to comply with information return requirements. They also will not be required to withhold and pay federal employment taxes for such benefit payments and will not be liable for any associated penalties.

Note that the extended transition relief does not apply to amounts that an employer voluntarily pays of any part of the employee’s otherwise required contribution to a state PFML program. As such, starting in 2026 employers must:

• Treat any contributions they voluntarily pay on behalf of their employees to a state PFML program as wages for federal employment tax purposes
• Comply with income tax withholding and reporting requirements

Assuming the IRS does not further extend the transition relief, starting January 1, 2027, states and employers will need to comply with third-party sick pay reporting and withholding requirements for state paid medical leave benefits with respect to the portion of the medical leave benefits attributable to employer contributions.

Going forward

• If not already compliant with third-party sick pay reporting and withholding requirements with respect to the portion of the medical leave benefits attributable to employer contributions, employers with employees in the states with mandatory PFML should continue to update their payroll and tax reporting systems as needed to comply by the end of 2026 (when the extended transition period expires).
• Employers that voluntarily pay any part of their employees’ required contributions to a state PFML program must treat the voluntary contributions as wages for federal employment tax purposes and comply with income tax withholding and reporting requirements starting in 2026.