December 22, 2025 — Late last week, the Internal Revenue Service (IRS) granted Colorado and other states a one year extension to implement updated federal tax withholding and reporting requirements for paid medical leave. Implementation of those changes is now expected in 2027, rather than January 1, 2026.
The immediate takeaway is simple: for 2026, Colorado’s Family and Medical Leave Insurance (FAMLI) program will continue operating under its existing federal tax treatment. Employers and third-party administrators participating in FAMLI do not need to make changes to payroll systems, employer reporting, or federal tax filings related to FAMLI benefits.
But for employers, payroll professionals, and state programs like FAMLI, the broader takeaway reflects what many in the employer and benefits community have known: administering state paid leave programs requires careful coordination with payroll systems, tax frameworks, and organizational workflows. This decision is about making sure paid leave works for employers, employees, and the people administering it everyday — and about how to move programs like ours forward, together.
Paid leave is here to stay — and it has to be implemented thoughtfully
Across the country, paid family and medical leave programs are maturing. As more states stand up or expand these benefits, the questions being asked are shifting from “Does paid leave work?” to “How can paid leave be administered responsibly and sustainably?”
Federal tax alignment is part of that evolution — and it’s complex. Payroll systems, employer reporting structures, and benefit delivery models don’t — can’t — change overnight. The IRS extension acknowledges that reality, and creates space for programs and employers to prepare deliberately, rather than rush toward compliance.
While FAMLI was ready for these changes, we see the IRS extension as an opportunity to build on that readiness in ways that benefit Coloradans best.
Why clarity and predictability matter
At FAMLI, our role is to provide stability in moments of uncertainty. When federal guidance changes, employers don’t need speculation — you need clear answers, early notice, and enough lead time to plan.
That’s why, following the IRS announcement, we moved quickly to confirm what this means for Colorado: no platform changes in 2026, no new employer reporting requirements, and no disruption to existing processes. And it’s why we’re committed to monitoring federal guidance closely and communicating next steps well ahead of any future implementation.
Paid leave only works when it’s predictable. For employers, predictability means fewer operational surprises. For workers, it means confidence that benefits will be there when they need them. And for states, it means building systems that earn trust over time.
Looking ahead — with intention
The shift to a 2027 federal timeline gives all of us — states, employers, and federal partners — the opportunity to align policy with practice. It allows time for thoughtful rulemaking, system testing, and collaboration across sectors.
Colorado has been a national leader in paid leave because we focus on building programs that last. This moment reinforces that approach. As always, our priority is clear communication, steady implementation, and supporting the employers and workers who make this program possible.