FMLA Tax Withholding and Your Paycheck: What You Need to Know

The Family and Medical Leave Act (FMLA) is a federal law that provides eligible employees with up to 12 weeks of unpaid leave for certain family and medical reasons. This leave can be a lifesaver, but it can also be confusing when it comes to taxes and your paycheck.

Under FMLA, your employer is required to continue paying you your regular salary, minus any amount you receive from other sources, such as workers' compensation or disability insurance. This is known as "intermittent pay" and it's calculated based on the amount of time you take off.

Here's the important part: your employer is also required to withhold federal income taxes, Social Security taxes, and Medicare taxes from your intermittent pay, just as they would from your regular pay. This means you'll still see taxes withheld from your paycheck, even if you're not receiving your full salary.

For your interest: When Is a Gift Tax Return Required

The Family and Medical Leave Act (FMLA) has specific tax implications that employers need to understand.

The FMLA requires employers with at least 50 employees to provide up to 12 weeks of unpaid leave for certain family and medical reasons.

Payments for damages due under the FMLA are considered wages, and employers are required to withhold taxes from these payments.

A federal court ruling in Cheetham v. CSX Transportation established that employers must deduct withholding from damages to a former employee wrongfully terminated under the FMLA.

This means that employers may have to withhold taxes from FMLA damages, even if the employee didn't actually perform services during their employment.

Employers who fail to withhold taxes from FMLA damages may have to pay twice - once to the former employee and once to the IRS as a trust fund recovery penalty under Code Section 6672.

It's essential for employers to understand their tax obligations under the FMLA to avoid any potential penalties or fines.

Suggestion: How Do I Report Household Employee Wages to the Irs

Tax withholding can be a complex issue, especially when it comes to the Family and Medical Leave Act (FMLA). Employers face tough choices when in doubt about withholding, and failing to withhold may have to pay twice.

The IRS has clarified that FMLA damages are subject to withholding, as seen in the Cheetham v. CSX Transportation case. In this case, the employer was required to withhold taxes from the damages owed to the former employee.

Employers must deduct withholding from damages to a former employee wrongfully terminated under the FMLA. This is in line with the ruling in Cheetham v. CSX Transportation, where the employer was required to withhold taxes from the damages owed to the former employee.

The IRS provides guidance on this issue, stating that employers should deduct withholding from damages to a former employee under the FMLA. This is a critical aspect of tax withholding and compliance.

If an employer fails to withhold, they may have to pay twice: once to the former employee and once to the IRS as a trust fund recovery penalty under Code Section 6672. This is a serious consequence of non-compliance.

Employers must carefully consider their withholding obligations under the FMLA to avoid this situation.

See what others are reading: When Do Employers Drug Test

Currently, 14 states and D.C. have mandatory paid family and medical leave (PFML) programs.

These programs require employers to contribute to the program, and employees may also contribute. The employer's contribution is an employer tax liability, not treated as taxable wages to the employee.

Employees who contribute to the program can deduct their contributions as income tax payments if they itemize their deductions.

The benefits paid under these programs for family leave are taxable, but not treated as wages subject to income and employment taxes and withholding.

Recommended read: 1099 for Attorney Fees Paid by Credit Card

Medical leave benefits may be partially or fully exempt from taxation, depending on the program's funding structure and whether contributions were made on a pre-tax or after-tax basis.

If you're a business in a state with a paid family and medical leave program, you'll need to consider the taxes on premiums paid by both you and your employees.

The IRS provides guidance on the employment tax treatment of contributions and benefits paid under state paid family and medical leave programs, as outlined in Revenue Ruling 2025-4.

Explore further: State Unemployment Tax Rates by State

Employer contributions to mandatory PFML programs are an employer tax liability and are not treated as taxable wages to the employee or reported on the employee's Form W-2.

Employees may deduct contributions to mandatory PFML programs as income tax payments if they itemize their deductions.

The benefits paid as family leave are taxable, but the benefits are not treated as wages subject to income and employment taxes and withholding and not reportable on Form W-2.

Any portion of the leave benefit attributable to employee after-tax contributions will be excluded from gross income and treated as an amount received for accident or health insurance for personal injuries or sickness.

The IRS provides transition relief from certain withholding, payment, and information reporting requirements for state paid medical leave benefits paid during the 2025 calendar year.

You might like: Do Capital Gains Taxes Change My Income Tax Rate