The Department of the Treasury and the Internal Revenue Service have issued Notice 2026-6, granting additional transition relief regarding the administration of State paid family and medical leave (PFML) programs. This guidance extends the non-enforcement period originally established in Revenue Ruling 2025-4, specifically concerning the taxation and reporting of medical leave benefits attributable to employer contributions.

For practitioners advising state administrators or employers participating in state PFML initiatives, it is critical to distinguish between the relief that has been extended and the specific compliance requirements that will nonetheless take effect in 2026.

Background: Revenue Ruling 2025-4 and Holding (4)

To understand the relief provided by Notice 2026-6, one must first review the underlying obligations established by Revenue Ruling 2025-4, issued on January 15, 2025. That ruling provided comprehensive guidance on the tax treatment of contributions and benefits under State PFML statutes.

Of particular relevance is "holding (4)" of Revenue Ruling 2025-4. This holding concluded that "amounts paid to an employee by a State as medical leave benefits that are attributable to the employer’s contribution pursuant to a State’s PFML statute are included in an employee’s gross income under § 105". Furthermore, the ruling classified these payments as "wages for Federal employment tax purposes under §§ 3121(a) and 3306(b), and are third-party payments of sick pay as defined in § 3402(o)".

Consequently, under strict application of holding (4), States are required to "comply with the employment tax and reporting requirements that apply to such payments under § 32.1 and other guidance". Recognizing the administrative burden of these requirements, the IRS initially designated calendar year 2025 as a transition period to "facilitate an orderly transition to compliance with those rules".

Justification for the Extension

The issuance of Notice 2026-6 stems directly from feedback provided by States operating PFML programs. According to the Notice, multiple States requested an extension or amendment to the effective date "because the required changes cannot occur within the current timeline".

The Treasury Department and the IRS acknowledged these logistical hurdles, stating they "understand that States may need additional time to make the necessary changes to their systems and state budgets to comply with their Federal income tax and employment tax obligations, as well as related information reporting responsibilities under § 32.1". Based on this necessity, the IRS determined that "calendar year 2026 will be regarded as an additional transition period for purposes of IRS enforcement and administration".

Technical Details of the Relief for Calendar Year 2026

The relief provided constitutes a suspension of enforcement and penalties regarding the third-party sick pay reporting and withholding requirements for state-paid medical leave benefits attributable to employer contributions. The Notice bifurcates this relief into two components applicable to benefits paid in calendar year 2026:

Income Tax Withholding and Reporting

For the specified medical leave benefits paid in 2026, "a State or an employer is not required to follow the income tax withholding and reporting requirements applicable to third-party sick pay". Consequently, the IRS confirms that "a State or employer will not be liable for any associated penalties under § 6721 for failure to file a correct information return or under § 6722 for failure to furnish a correct payee statement to the payee".

Employment Tax Compliance

Regarding employment taxes (FICA and FUTA), the Notice provides that "a State or an employer is not required to comply with § 32.1 and related Code sections (as well as similar requirements under § 3306) during the calendar year". Furthermore, "a State or an employer is not required to withhold and pay associated taxes," and "a State or employer will not be liable for any associated penalties".

Limitation of Relief: Treatment of Employer Pick-Ups

Practitioners must exercise caution regarding the scope of this extension. Notice 2026-6 explicitly excludes the "third component" of the transition relief found in Revenue Ruling 2025-4, holding (5), which pertains to "employer pick-ups" (amounts an employer voluntarily pays of the employee’s required contribution).

The Notice states: "This notice does not extend the third component of the transition relief announced in Revenue Ruling 2025-4 to an employer pick-up for calendar year 2026".

Therefore, for calendar year 2026, employers must treat voluntary contribution payments made on behalf of employees to a State PFML program as "wages for Federal employment tax purposes under §§ 3121(a), 3306(b), and 3401(a) and report such amounts on the employee’s Form W-2, Wage and Tax Statement, in accordance with § 6051".

Conclusion

Notice 2026-6 is effective for "medical leave benefits paid from States to individuals during calendar year 2026". While this offers significant administrative reprieve for States and employers regarding third-party sick pay compliance, tax professionals must ensure clients are compliant with the immediate wage treatment and reporting requirements for employer pick-ups starting in 2026.

Prepared with assistance from NotebookLM.