IRS Tax Guidance
IRS Tax Guidance — FAMLI Medical Benefits
This page provides information on IRS Rev. Rul 2026-6 and its impact on FAMLI medical leave benefits.
The information on this page is for general informational purposes only. It is not tax or legal advice. Employers and individuals should consult their own tax advisors about their federal tax obligations.
One-Year Extension For Implementation of FICA Reporting
Late last week, the Internal Revenue Service (IRS) granted Colorado and other states a one year extension until 2027 to implement updated FICA and federal tax reporting requirements for paid medical leave until 2027.
That decision is outlined in IRS Notice 2026-6.
What This Means For You In 2026
For the calendar year 2026, FAMLI will continue operating under its existing federal tax treatment.
- FAMLI will not treat medical leave as “third party sick pay,” and will continue to treat it like other benefits.
- There will be no new employer withholding or reporting requirements.
- There will be no changes to employer FICA tax responsibility.
- Employees may continue to elect federal income tax withholding, regardless of benefit type.
- FAMLI will continue to issue Form 1099-G directly to employees.
For Third-Party Administrators (TPAs)
The IRS extension applies to all state paid leave programs, including FAMLI. For your employer clients, this means:
- No updates are required to employer reporting for FAMLI benefits in 2026.
- No new employer responsibility for federal tax reporting related to FAMLI medical leave benefits.
- As always: our goal is to provide clear guidance and predictable operations for employers and workers alike.
- FAMLI will continue to share timely updates as federal guidance evolves.
FAQ: Federal Tax Treatment for 2026 FAMLI Benefits
Key Takeaway
For calendar year 2026, employers and TPAs should continue current payroll and reporting practices. No action is required at this time.
- Will FAMLI medical leave benefits be treated uniquely as “third-party sick pay” in 2026?
No. The IRS has delayed implementation of updated third-party sick pay withholding and reporting requirements until 2027. Until then, medical leave benefits will continue to be treated the same as other benefits.
- Does this mean employers will have new federal tax or FICA reporting responsibilities in 2026?
No. There are no new employer federal tax, FICA, or FUTA reporting requirements related to FAMLI benefits in 2026. FAMLI will continue operating under its current federal tax treatment.
- Is this a permanent change?
This is a timeline extension. The IRS has moved implementation to 2027, and FAMLI will share updated guidance well in advance of that date.
- What is FAMLI’s “current federal tax treatment?”
For 2026:
- Employers are not responsible for any new federal tax reporting related to FAMLI benefits.
- Employees may continue to elect yes or no federal income tax withholding for FAMLI benefits, regardless of benefit type.
- FAMLI will continue issuing Form 1099-G directly to employees.
- Do employers need to update payroll systems or reporting for federal tax purposes in 2026?
No. Employers should continue current payroll and reporting practices for FAMLI benefits.
- Does IRS guidance make FAMLI benefits taxable for Colorado state income tax?
No. All FAMLI benefits — including medical leave benefits — remain exempt from Colorado state income tax. The IRS guidance does not affect this exemption.
- Will FAMLI rules change as a result of the IRS extension?
FAMLI anticipates a limited emergency rulemaking process to align state rules with the updated federal timeline. Any changes will be communicated clearly to employers and TPAs once finalized.
- Will there be changes in the future?
The IRS extension moves federal implementation to 2027. FAMLI will actively monitor updates and share clear, timely guidance with employers and TPAs well ahead of any changes.