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On December 19th, 2025, the Internal Revenue Service (IRS) released new information on State Paid Family and Medical Leave programs. Specifically, Notice 2026-06 extends the transition period established in 2025 by Revenue Ruling 2025-4 by one year. Accordingly, Revenue Ruling 2025-4 provided guidance on the federal income and employment tax treatment of contributions and benefits related to State-administered Paid Family and Medical Leave programs. As a result, calendar year 2026 will also be treated as a continued transition period with respect to medical leave benefits paid by a state that are attributable to employer contributions. Previously, in November 2025, the IRS unveiled updated benefit contribution limits for retirement plans effective in 2026. In summary, the agency stated that these adjustments are part of its commitment to help Americans secure their financial futures.
What Is Revenue Ruling 2025-4?
Earlier, on January 15th, 2025, the IRS issued guidance on the income and employment tax treatment of contributions and benefits paid under a State Paid Family and Medical Leave program. The guidance also discussed related reporting requirements. Specifically, 2025-4 was created for the District of Columbia and for any states with mandatory Paid Family and Medical Leave programs. All employers and employees operating and working in those states were affected by that release. To assist all employers in determining whether they are subject to the 2025-4 regulations, WorkWise Compliance recently posted an article on the subject.
Among other things, Revenue Ruling 2025-4 explains multiple tax treatment scenarios for contributions to and benefits paid under these Paid Family and Medical Leave programs, as well as the related reporting requirements. For example, an employee who receives state paid family leave payments must include those amounts in their gross income. Meanwhile, an employee who receives state paid medical leave payments must include the amount attributable to the employer portion of contributions in their gross income.
Finally, 2025-4 granted transition relief to the District of Columbia, states, and employers from certain withholding, payment, and information reporting requirements for state paid medical leave benefits paid during calendar year 2025. This extension was until 2026.
Overview of Notice 2026-06
As noted previously, states and participating employers in Paid Family and Medical Leave programs had until January 2026 to report required withholding and certain payment information. Now, however, under Notice 2026-06, these entities will not be required to comply with federal income tax withholding, employment tax, or related information-reporting requirements. This, though, is only applicable to third-party sick pay information for that portion of medical leave benefits. The lack of reporting will also not be subject to associated penalties for noncompliance. This information will not be required until beginning January 2027.
Employers Takeaways
In conclusion, the IRS explained that the extension is in response to requests from states administering paid family and medical leave programs. According to the states, they need additional time to update systems, budgets, and reporting processes to align with the original rules included in Revenue Ruling 2025-4. As a result, employers participating in state paid family and medical leave programs should work with payroll providers and monitor IRS guidance for any additional updates. Chiefly, this is to ensure compliance once the transition period ends after calendar year 2026.
