Wage withholdings for Paid Family and Medical Leave should begin with the first payment made on or after Oct. 1, 2019. Therefore, the withholdings could be for services rendered in September but paid for in October.
How to report PFML contributions on W-2 and 1099-MISC tax forms
Employers reporting year-end PFML contributions on both the W-2 and 1099-MISC forms should report contributions on Box 14 for W-2s and Box 16 for 1099-MISC. In both cases, the boxes should read “MAPFML”
The amounts in Box 14 (on the W-2) and Box 16 (on the 1099-MISC) reflect the worker's year-end PFML contributions, not that of their employer. Contributions are calculated based on eligible wages earned by the employee up to the social security income limit. Therefore, if the worker's wages are considered wages under MGL c. 151A, the contribution must be made on those wages. Contributions are then remitted by the employer on behalf of the worker on a quarterly basis. Employers must issue either a 1099-MISC or W-2 that lists the total contributions (Box 16 or 14 respectively) withheld over the prior calendar year. The amounts provided in the Boxes should include both Family and Medical Leave combined.
Tax treatment of PFML contributions
The tax treatment of PFML contributions for both state and federal purposes is governed by federal tax law. The Commonwealth has requested guidance from the Internal Revenue Service (IRS) on this question and others related to the tax implications of PFML contributions and benefits. 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.
Until IRS guidance is issued, individuals and businesses are urged to consult with their own tax advisors on these questions.
Based on its own review of federal rules and following consultation with the Massachusetts Department of Revenue, the Department of Family and Medical Leave anticipates that the IRS will conclude that employee contributions should be withheld from after-tax wages.
A definitive rule for the proper tax treatment of contributions will be available once IRS guidance is issued.
1099-MISC worker reconciliation process for overpayment
For 1099-MISC workers who may have over-contributed to the paid family and medical leave (“PFML”) fund, the following guidance has been issued:
If you are self-employed and have opted into PFML, you should make contributions based on your net earnings.
If you're a 1099-MISC worker who is a covered individual, your employer may base contributions on your gross earnings instead. This may result in overpayment. If an adjustment needs to be made, you can do this on the Massachusetts personal income tax form. The instructions for the Massachusetts Form 1 and Form 1-NR/PY explain how to make this adjustment and recalculation for any overpayment.