Family leave benefits in New York bring new IRS tax implications
Disability Benefits Law (DBL) brokers in New York State are getting a handle on the new paid family leave benefits, with the new PFL law set to start January 1, 2018.
The DBL Center has provided a host of paid family leave resources and information in a new section on our website. We will also continue to offer webinars and live sessions explaining the intricacies of this new benefit.
While we know tax laws may change across the board in 2018 for businesses and individuals, it’s important to understand the tax ramifications of PFL for employers and employees now.
In short: how should accounting departments, Human Resources, payroll, and benefits departments in small businesses and larger corporations treat family leave employee contributions and benefits?
Family Leave: Taxable Just Like Disability Income
Family leave benefits, just like short-term disability benefits, are taxable as non-wage income and reported by taxpayers using FORM 1099-MISC.
The exception? Employee contributions, deducted after taxes, are not included as part of this taxable income. The insurance provider or employer should send a 1099-G form that employees can use when filing taxes, so they know which portion of their family leave benefits are taxable.
Employees Should Understand Withholding Tax Laws to Budget for An Event
The tax ramifications of paid family leave benefits will take some money out of the pockets of claimants. Smart planning can help employees minimize their tax liability on April 15, when federal and state income taxes are due. Alternately, employees can opt to keep more money in their pockets when they need it most—at the time of the family leave.
Employees can request to have withholding taxes deducted from their family leave benefits before receiving their benefits. This will reduce the size of benefits checks, but may also help reduce tax liability at the end of the year. Depending on the length of the maternity leave, the employees’ personal savings and financial situation, along with their expected tax bill, some employees may choose to have taxes withheld.
More commonly, employees will collect the full amount of their family leave benefits and then pay taxes on that income when they file federal and state income taxes. By that time, it’s expected that employees would be back to work and collecting their full salary, putting them in a better position to pay those taxes.
In the case of family leave taken for childbirth or adoption, the employee may also be able to take advantage of the child tax credit and claim their new family member as a dependent, further reducing their tax liability.
How Family Leave Taxes Affect Brokers
As a broker, it’s good to know the tax implications if Paid Family Leave in order to help educate the c-suite executives and HR professionals who make up your client base. You can be a resource for your customers and the first person they think of when they need an expert in PFL and disability benefits law.
When you inform employers and employees of the potential tax ramifications, this can help them make the best decisions or decide to pursue further information from tax experts. When customers have questions, it’s important to suggest they check with a tax professional to determine the best course of action.
Are Your Customers Ready for Paid Family Leave?
The PFL benefits rider to New York State DBL goes into effect in less than two months, on January 1, 2018. Many of your customers should already be deducting employee and employer contributions.
Now is the time to discuss options, including enriching their DBL benefits package so it is comparable to paid family leave in New York.
Contact The DBL Center now to enrich DBL for your customers and increase your commissions on these important mandatory benefits.