Maine Paid Family & Medical Leave updates benefit taxability

AUGUSTA – Maine Department of Labor's Paid Family & Medical Leave (PFML) program has updated its FAQs for employers and employees to help answer questions they may have about the taxability of benefits.

"As businesses prepare to implement the Paid Family & Medical Leave program in 2026, we've chosen an option that makes compliance with the recent IRS tax rules as simple and supportive of businesses as possible," said Maine Labor Commissioner Laura Fortman.

Highlights of the FAQs include:

For employees:
Whether Maine PFML benefits are taxable depends on the situation. The Internal Revenue Service (IRS) is the best source of information and has released guidance.
Benefits paid for family leave claims are considered taxable income, but they are not considered wages. You can choose to have withholdings from your benefits for state and federal income taxes. You'll get a Form 1099-G at the end of the year for when you file your income tax return.
Benefits paid for medical leave claims are treated differently depending on who is required to pay the premiums for coverage: the employee or the employer.
When the employee pays all the Paid Family & Medical Leave premiums, their medical leave benefits are not taxable at all. In Maine, employers who have less than 15 workers are exempted from their portion of the premium, so the employee would pay all the premium.
When the employee pays only a portion of the premiums, then only the proportion of benefits corresponding to their contributions are exempt from tax. The proportion attributable to the employer's contribution would be taxable wages.
Even if an employer voluntarily pays a portion of the employee's premium share, the taxation rules are still the same as what is assumed in law for cost sharing.

Generally, this will mean that if an employee takes leave from an employer with less than 15 employees, none of their medical leave benefits are taxable. If they take leave from an employer with 15 employees or more, half of their medical leave benefits will be taxable as wages.

Payroll taxes for Social Security and Medicare will be taken out of this taxable part of medical leave benefits. They can also elect to voluntarily withhold state and federal income taxes and will get a Form W-2 for the taxable portion when they file their income tax return.

For employers:
For the portion of medical leave benefits that are subject to payroll taxes, the Department will cover the responsibility of calculating and paying the required employer payroll tax matches. The Administrator will remit payroll taxes and issue Forms W-2 to employees as needed, on behalf of the Department. The Department will assume this responsibility and associated costs during the initial phase of the program to reduce complexity in the tax treatment of benefits. The Department acknowledges that employers already comply with the payroll tax requirements for short-term disability programs and reserves the right to adopt a comparable process for PFML benefits in the future.

In 2023, Maine Gov Janet Mills signed a historic budget that includes the creation of a paid family and medical leave program, making Maine the 13th state to establish one.

Starting in 2026, eligible workers in the private and public sector will have up to 12 weeks of paid time off available to care for a family member with a serious health condition, to bond with a child after birth, fostering or adoption, to care for their own medical needs, to deal with the transition of a family member’s impending military deployment or to stay safe after abuse or violence.

To keep up to date with information on Maine's Paid Family & Medical Leave program, visit https://www.maine.gov/paidleave/ <