Employment Advice & Counseling | Felhaber Larson https://www.felhaber.com/practice/employment/employment-advice-counseling/ Small firm relationships. Large firm impact. Wed, 31 Dec 2025 17:38:39 +0000 en-US hourly 1 https://www.felhaber.com/wp-content/uploads/2015/10/favicon-72x71.png Employment Advice & Counseling | Felhaber Larson https://www.felhaber.com/practice/employment/employment-advice-counseling/ 32 32 New Guidance on the Taxability of Medical Leave Benefits Under The Minnesota Paid Leave Program for Calendar Year 2026 https://www.felhaber.com/new-guidance-on-the-taxability-of-medical-leave-benefits-under-the-minnesota-paid-leave-program-for-calendar-year-2026/ Wed, 31 Dec 2025 17:38:39 +0000 https://www.felhaber.com/?p=26204 The Minnesota Paid Leave Program recently provided some new guidance on the taxability of medical leave benefits for calendar year 2026.    The guidance was prompted by new information issued by the Federal Internal Revenue Service (“IRS”) regarding the tax treatment of state paid leave benefits, like those that will take effect in Minnesota January 1,...

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]]> The Minnesota Paid Leave Program recently provided some new guidance on the taxability of medical leave benefits for calendar year 2026.    The guidance was prompted by new information issued by the Federal Internal Revenue Service (“IRS”) regarding the tax treatment of state paid leave benefits, like those that will take effect in Minnesota January 1, 2026.   The new guidance can be found here:  https://pl.mn.gov/employers/taxes-and-paid-leave.

By way of very brief overview, the tax treatment of Minnesota paid leave benefits is driven by then-current IRS guidance.    Until the issuance of the new guidance, we understood the taxability of benefits would be governed by IRS Revenue Ruling 2025-4 (“RR 2025-4”).    In a somewhat surprise move, the IRS issued new guidance delaying the implementation of RR 2025-4 for calendar year 2026.     The net effect is that medical leave benefits (as distinguished from family leave benefits) do not need to be reported on an employee’s W-2 in 2026.   This is, however, just a one-year pause — unless something changes again.

The Bottom Line

As a result of the developments described above, medical leave benefits received by an employee in 2026 (i.e., for an individual’s own illness, injury, etc.)  will not be treated as “third-party sick pay” as contemplated by RR 2025-4 for calendar year 2026 and do not need to be reported on an employee’s W-2.

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