Tax
Regulations
To comply with the regulations for FAMLI, and the private FAMLI plan, it is important to understand the various rules and guidance regarding the taxation of benefits and employer and employee obligations.
Premium Contributions
Starting in 2026 in Colorado, the total state contribution rate will be 0.88% of gross employee wages. Employees cannot be charged more than 50% of the total premium (0.44%). Employers using the American Fidelity private plan cannot charge employees more than 50% of the total premium, nor can they charge them more than they would be charged under the state plan (if the rate is different than the state rate). While premium contribution amounts are calculated based on an employee's gross (pre-tax) wages, premiums are deducted from employee pay on an after-tax basis.
Taxation of Benefits
The Internal Revenue Service (IRS) has not provided direct guidance on how private plan FAMLI benefits are taxed, but other guidance provides insight into how these benefits should be treated for tax purposes.
Based on our interpretation of existing federal guidance for similar benefits, the reason for paid leave determines whether the benefits received are considered federal taxable income:
- Family leave, safe leave/personal protected leave, and qualifying military exigency leave are fully taxable to the employee taking leave
- Medical leave benefits for an employee's own serious health condition are taxable based on the percentage the employer pays of the total contribution rate
Third-Party Sick Pay Reporting
Some paid leave benefits for an employee’s own serious health condition are considered third-party sick pay, which makes American Fidelity a third-party payer of sick pay. When working with us for PFMLI insurance, you are responsible for reporting all sick pay benefits paid by us on IRS Form W-2 and employment tax forms. To adhere to third-party sick pay reporting requirements, employers must report the entire amount of PFMLI benefits paid to an employee during their leave due to their serious health condition. This data must be reported on the employee’s IRS Form W-2 for the year in which the benefits were paid.
For employers using the PFMLI Tax Assist service, your responsibility is shifted partly to us. American Fidelity will pay the employer portion of FICA and provide the IRS Form W-2 for the PFMLI benefits subject to third-party sick pay rules. Terms, exclusions, and additional fees apply.
Employee Income and FICA Tax
American Fidelity will withhold federal and state income taxes from PFMLI taxable benefits that are considered third-party sick pay to the extent required, including the employee’s portion of FICA tax. The employer is responsible for remitting any additional state, local or federal taxes, and completing any required IRS Form W-2 reporting. Please consult an attorney or tax professional regarding your specific situation.
While the IRS has not provided definitive guidance for private plans, for medical leave benefits, the employer paid portion of the taxable benefit is subject to FICA and reported on IRS Form W-2. We will provide third-party sick pay reporting to employers so they can properly report and prepare IRS Form W-2 for their employees. Employers are responsible for all IRS Form W-2 reporting.
For employers with PFMLI Tax Assist, American Fidelity will pay the employer portion of FICA and provide the IRS Form W-2 for the PFMLI benefits subject to third-party sick pay rules. Terms, exclusions, and additional fees apply.
For employers who choose not to participate in the PFMLI Tax Assist service, we will provide IRS Form 1099-MISC directly to employees for all non-medical leave benefits by the end of January. If an employee has not received their appropriate tax forms by the second week of February, they should contact us through their online account or call 800-662-1113.
All employers and employees should consult their own tax advisors regarding the tax consequences of PFMLI contributions and benefits.
Employer Responsibilities
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