Understanding the Change
The IRS has released new guidance that affects how Family and Medical Leave Insurance (FAMLI) benefits are taxed beginning in 2026. If you’re an employer with 10 or more employees, you’ll need to update how you handle certain payroll and tax responsibilities. These changes apply specifically to medical leave benefits paid for an employee’s own health condition, not family leave.
Federal vs. State Tax Treatment
Here’s the key takeaway: while these medical leave benefits will be taxable for federal income, FICA, and FUTA purposes, they will remain exempt from Colorado state income tax. That means you should not increase the state wage amounts listed on employee W-2 forms as a result of these payments.
What’s New for Employers
Starting in 2026, employers will take on new reporting tasks:
- Remit employer portions of FICA and FUTA taxes.
- Reconcile data with FAMLI via Form 8922 each year.
- Begin issuing W-2s for medical leave benefits in 2027.
FAMLI will continue reporting family leave benefits on Form 1099G and filing quarterly reports to the IRS.
Support and Tools for a Smooth Transition
To help employers adapt, FAMLI is rolling out a comprehensive Employer Toolkit that includes FAQs, video tutorials, visual guides, and an updated Employer Handbook. Employers can access these materials through their MyFAMLI+ Employer accounts, where overpayment updates and compliance notices will also appear.
Preparing for What’s Ahead
Between now and 2026, FAMLI will host webinars, chamber events, and ongoing information sessions to answer questions about reporting and compliance. Employers are encouraged to verify their MyFAMLI+ user access, review tax procedures, and coordinate with advisors early.
In Summary
This guidance represents an important alignment between FAMLI and federal IRS rules. It is one that will help create consistency and clarity for Colorado businesses. Employers who prepare now will ensure compliance, avoid reporting errors, and make tax season easier when the new rules go into effect.