Beginning in January of 2021 most workers in Massachusetts will be eligible to get up to 12 weeks of paid family leave and up to 20 weeks of paid medical leave. The program will be funded by premiums paid by employees, employers, and the self-employed. Contributions to the program will begin on October 1, 2019, and will be managed through the Department of Family and Medical Leave (DFML) per MGL c.175M as added by St. 2018, c.121.
For details regarding the benefits mandated by this new law, please visit the DFML website.
Covered Individuals Under the Law
As of October 1, 2019, businesses with at least one Massachusetts employee will be required to remit PFML contributions on behalf of the employee to the Family and Employment Security Trust Fund. In some cases, businesses that retain independent contractors will also be required to remit contributions on their behalf. Covered contract workers are defined as those contractors whose payments are required to be reported on IRS Form 1099-MISC.
- W-2 employees will always count as covered individuals (full-time, part-time, or seasonal). Generally, the same eligibility criteria as the unemployment insurance program in Massachusetts applies. If you are required to report a W-2 employee’s wages to the Department of Unemployment Assistance (DUA), those employees should be counted. These employees don't need to reside in Massachusetts to be covered.
- 1099-MISC contractors count toward your total number of covered individuals only if they make up more than 50% of your total workforce (W-2 employees and 1099-MISC contractors combined). Otherwise, an employer is not required to contribute or report on 1099-MISC workers.
Counting MA 1099-MISC contractors as covered individuals
In order for a 1099-MISC worker to be considered part of your Massachusetts workforce count, the 1099-MISC contractor MUST:
- Perform services as an individual entity.
- Live in Massachusetts.
- Perform services in Massachusetts.
The 1099-MISC worker MUST NOT:
- Be an independent contractor as defined by the Massachusetts unemployment statute, (M.G.L. c.151A), which is a guiding authority for the PFML program in many respects.
The Massachusetts unemployment statute defines independent contractors as workers who meet this three-part test.
If a worker meets the criteria provided above and you have determined that the individual entity is not an independent contractor under the three-part test, then you should count him or her as a member of your Massachusetts workforce.
Note that only services provided that would otherwise require the issuance of a 1099-MISC are subject to contributions. For a full description of when a 1099-MISC is required, please refer to the IRS guidance on reporting payments to independent contractors.
For the purposes of counting your workforce, professional corporations (PCs), Limited Liability Companies (LLCs), Sole Member LLCs, partnerships, and corporations are not individuals and should not be included in your count, even if you make payments to them by 1099-MISC. Those types of business entities should not have withholdings taken by an employer.
Each quarter, you'll be required to submit contributions for all covered individuals in your workforce. As illustrated below, you may deduct a part of the required contribution from wages you pay your employees and payments you make to 1099-MISC contractors who qualify as covered individuals. If your workforce has fewer than 25 covered individuals, you are not responsible for paying the employer share of the contribution.
Employers with 25 or more employees will be required to remit a contribution to the DFML of 0.75% of eligible payroll. This contribution can be split between employee payroll deductions and an employer contribution and will support both types of leave.
Up to 100% of the family leave contribution can be deducted from employee wages.
Up to 40% of the medical leave contribution can be deducted from employee wages. Employers are responsible for contributing the remaining 60%.
Employers with fewer than 25 employees must remit contributions to the DFML but are not responsible for remitting the employer’s share.
Exemption from Paid Family and Medical Leave FAQs
My company currently provides our Massachusetts employees paid family and medical leave benefits that extend beyond those provided under the Commonwealth’s plan. Can I apply for an exemption prior to PFML’s effective date of October 1, 2019?
Yes. Employers and businesses that currently provide paid family and medical leave benefits equaling or exceeding those provided under the Commonwealth’s plan are eligible to apply for a Private Plan Exemption. Exemption requests are processed through MassTaxConnect, accepted on a rolling basis and, if approved, are valid for one year. Only duly authorized representatives can apply for a Private Plan Exemption on a company’s behalf.
If my company adopts a private plan sometime in the future and that plan is approved for an exemption, when can I stop contributing to the Fund?
The first day of the following quarter in which your exemption was approved.
If my exemption request is denied, can I have the decision reviewed?
Yes. You can request a review through MassTaxConnect. The DFML will make a decision on your requested review.
Registration Process FAQs
Are all Massachusetts businesses required to register with DOR?
Businesses with one or more Massachusetts employees are required to register through MassTaxConnect.
When will MassTaxConnect open for PFML account registrations?
MassTaxConnect will open for PFML registrations on October 1, 2019.
What if I already have a withholding and/or other business tax account type on MassTaxConnect?
If you already have an active withholding account, MassTaxConnect will auto-register a PFML account type on your behalf with an effective date of October 1, 2019.
Determine Workforce Count FAQs
How do I calculate my company’s workforce count?
Workforce count is determined by using different methods to calculate annual workforce averages for employers and other businesses that employ W-2 employees and/or independent contractors. An independent contractor providing services to a business is covered under the new law only if (1) payments made to him or her for services are required to be reported on IRS Form 1099-MISC, and (2) independent contractors make up greater than 50% of the business’s workforce.
Example for including 1099-MISC in workforce count
A Massachusetts law firm temporarily hires ten attorneys to perform legal work at its Boston office. At the end of the year the law firm issues all ten attorneys Form 1099-MISC. In this example, all ten attorneys should be included in the law firm’s PFML workforce calculation since they:
- Performed services in Massachusetts that were within the business’s ordinary course of business and
- Resided in Massachusetts.
Example for not including 1099-MISC in workforce count
A Massachusetts law firm hires a plumber to repair burst pipes at its Boston office and at the end of the year issues a Form 1099-MISC. In this example, the plumber would not be included in the business’s PFML workforce calculation since he/she did not perform services within the law firm’s ordinary course of business.
Workforce counts for employers that strictly employ W-2 employees are determined by calculating the number of employees, of all ages (whether union-represented or not), including full-time, part-time and seasonal employees, on the payroll during each pay period and dividing that number by the number of pay periods. These employees do not need to reside in Massachusetts to be covered.
In the below example, Company A had 276 employees on its payroll across 12 pay periods. Company A’s final workforce count is calculated by dividing the number of its W-2 employees (276) by the number of pay periods (12) which equates to an average annual workforce of 23.
|Company A Payroll|
|Pay Periods (12)||W-2 Employees|
Businesses Employing W-2 Employees and Independent Contractors
A three-step process is used for calculating average annual workforce counts for businesses that employ both W-2 employees and 1099-MISC independent contractors. This three-step process is outlined below.
Step 1 - W-2 Employee Count
Average annual W-2 employee workforce count is determined by calculating the number of W-2 employees, including full-time, part-time and seasonal employees, on the payroll during each pay period and dividing that number by the number of pay periods.
|Step 1 Example:|
|Company B Payroll|
|Pay Periods (12)||W-2 employees|
Step 2 - Independent Contractor Count
Average annual independent contractor counts are determined by totaling the number of independent contractors paid for services for each pay period and then dividing that number by the number of pay periods.
|Step 2 Example:|
|Company B Payroll|
|Pay Periods (12)||Contract Workers|
Step 3 – Independent Contractors as a Percentage of Total Workforce
Add your company’s prior year W-2 employee average to its 1099-MISC independent contractor average to arrive at the total workforce average. If your 1099-MISC independent contractor average is less than 50% of your total workforce average, do not include your 1099-MISC independent contractors in your PFML Workforce Count. If your 1099-MISC independent contractor average is more than 50% of your total workforce average, then those independent contractors are covered contract workers, and you need to add your covered contract worker count to your W-2 employee count. This combined count represents your company’s final PFML Workforce Count.
|Step 3 Example:|
|Independent Contractors as a Percentage
of Total Workforce
In the above example, Company B’s independent contractors as a percentage of total workforce is 36%. As this percentage is less than 50%, Company B’s independent contractors are not covered contract workers. Therefore, Company B’s final Workforce Count is 16.
If Company B’s independent contractor annual average had been 17, which is 51.52% of Company B’s total workforce average, then Company B’s independent contractors would have been covered contract workers. In this example, Company B’s final Workforce Count for the prior year would be 33.
How do I determine workforce count if my company is a startup?
You should make a good faith estimate as to what you expect your payroll will look like over the next 12 months.
Are specific categories of employers and/or employees exempt from the PFML requirements?
Yes. Municipalities, districts, political subdivisions or its instrumentalities along with their employees are not subject to PFML. However, these entities may opt in by a majority vote of the local legislative or governing body that authorizes a public or quasi-public to take such a vote.
Are sole proprietors, members of limited liability companies or partnerships eligible to participate in PFML?
Yes. Self-employed individuals (SEIs), such as those referenced above, may elect coverage under PFML. Such an election requires the individual to file a written notice of election with the DFML and pay into the PFML Fund for an initial period of not less than three (3) years. The SEIs' election becomes effective on the date their written notice is filed. SEIs will not be eligible to apply for PFML benefits until SEIs have contributed to the PFML Fund for at least two (2) of their last four calendar quarters.
Are certain types of employment excluded from the PFML law?
Yes. Certain types of employment that are excluded under section 6 of the unemployment statute are also excluded from the PFML law, including:
- Services performed for a son, daughter, or spouse
- If under 18, services performed for one’s father or mother
- Services performed by inmates of penal institutions
- Independent contractors as defined by this three-part test
- Employment in the railroad industry
- Services provided by real estate brokers/salespeople and insurance agents/solicitors in commission only jobs
- Newspaper sales and delivery by persons under 18
- Employment by churches and certain religious organizations
- Services of work-study students, student nurses and interns, work trainee programs administered by non-profit or public institutions
Please review Section 6 of MGL c. 151A for a complete list of excluded employment.
Withholding and Remittance FAQs
When is my company required to begin withholding PFML contributions from my employees’ wages and certain independent contractor payments?
Employers and other businesses are required to begin withholding PFML contributions from employee and independent contractor earnings beginning on October 1, 2019.
Is there an income limit for PFML contributions?
Yes. PFML follows the same annual income limits as those set by the Social Security Administration for the Social Security Program. The 2019 income limit is set at $132,900. Social Security income limits typically reset annually and remain in effect on a calendar year basis.
When I begin withholding PFML contributions on October 1, 2019, is the 2019 PFML income limit calculated using year to date wages?
No. The 2019 PFML income limit is calculated on wages/payments made to employees/covered contract workers from October 1, 2019 through December 31, 2019.
Are employers of temporary foreign workers, international students and foreign exchange program participants required to remit contributions on behalf of those employees?
H-2A visa holders (seasonal agricultural workers) are categorically exempt from making PFML contributions. Therefore, employers of H-2A visa holders are not required to remit PFML contributions on behalf of such employees. However, employers employing all other temporary foreign worker visa programs (e.g., H-1B, H-2B, O-1, and O-2, etc.,) are required to remit contributions on behalf of those employees. Employers of holders of international student and foreign exchange program visas (e.g., F-1, OPT, J-1, and J-2) are similarly required to remit contributions on behalf of those employees when those employees are permitted to work in the United States.
My business employs workers whose primary source of compensation is tips. These employees often receive zero dollar paychecks as all of their wages have gone toward making federal, state and FICA tax payments. In such cases, are employers required to make up their tipped employees’ PFML contribution shortfalls?
Yes. Employers of tipped employees are still required to remit the full contribution on behalf of those tipped employees, even where net wages are insufficient to cover the employee’s contribution. It is up to the employer to determine whether and how to recover the employee’s portion from the employee.
What are the tax implications for PFML contributions and benefits?
The corporate excise and personal income tax implications of PFML contributions and benefits are governed by federal law. State PFML tax issues are part of the IRS’s 2020 Priority Guidance Plan, which identifies the IRS’s top priorities for guidance for the coming year.
DOR will provide information about the tax treatment of PFML contributions and benefits as soon as IRS guidance is available.
Until IRS guidance is issued, individuals and businesses should consult with their own tax advisors on these questions.
Reporting and Overpayment FAQs
What if I had two or more employers during the year and my PFML contributions exceeded that required by the Social Security Administration’s Annual Wage Limit?
Using PFML withholding information contained on your W-2s, individual taxpayers can claim a tax credit for such overpayments on their Massachusetts State Personal Income Tax Returns.
What is the filing frequency for PFML contributions?
Employers, other businesses entities and self-employed individuals electing PFML coverage are required to file Quarterly Returns through MassTaxConnect.
The first required Quarterly Return will cover the period from October 1, 2019 to December 31, 2019 and must be filed on or before January 31, 2020. All subsequent return filings will be due on or before the last day of the month following a calendar quarter’s close.
How should businesses report year-end PFML contributions on IRS Forms W-2 and 1099-MISC?
Businesses will report contributions in Box 14 (Other) for Form W-2 and in Box 16 (State tax withheld) for Form 1099-MISC. The contribution line on both forms will read “MAPFML.”
Professional Employment Organization FAQs
If a business enters into a Professional Employment Agreement (PEA) with a Professional Employment Organization (PEO) is the PEO or the business considered the employer of the employees covered under the PEA?
PFML follows the Massachusetts Unemployment Insurance Statute (MGL 151A) in this area and considers employees covered under PEAs to be employees of the business and not the PEO. As the employer of record, the business should include these employees in their PFML workforce calculations.
Professional Employment Organizations (PEOs) typically file a single consolidated return when reporting Massachusetts withholding taxes on behalf of their clients. Is consolidated filing also an option for PEOs when filing PFML returns?
Since the business is considered the employer for PFML purposes the business must file a return that includes its entire covered workforce which would include the employees paid by the PEO. If the PEO filed a single consolidated return for all of its clients then all the employees of the various clients would be grouped together. By lumping all of these employees together the workforce count would always be greater than 25. The workforce count and the employer contribution rate should be determined on a client by client basis. Therefore, a PEO should never submit a consolidated return on behalf of their clients. Instead, PEOs should submit individual filings for each client. PEOs should use DOR's bulk filing method so all of their clients’ returns are transmitted in a single transmission.
MassTaxConnect’s bulk filing specifications can be found here.
Step-by-step MassTaxConnect Instructions and Videos
- File a return and remit a contribution for Paid Family and Medical Leave
- Opt in and contribute to Paid Family and Medical Leave as a self-employed individual
- Upload a bulk Paid Family and Medical Leave return
- Upload an Excel spreadsheet and make a payment for Paid Family and Medical Leave
- Request a Paid Family and Medical Leave exemption
For all further questions regarding applying for a Private Plan Exemption or registering your account on MassTaxConnect, please contact DOR at (617) 466-3950 to speak to a PFML representative.