Minnesota’s Paid Family & Medical Leave: What’s Taxable, What’s Changed, and What You Need to Know

Whether you’re an employer or an employee preparing for time away from work, understanding these tax rules now can help you avoid surprises later. Here’s what you need to know about the 2026 tax treatment of Minnesota’s PFML benefits.

Minnesota Paid Family and Medical Leave provides eligible workers with partial wage replacement when they need time away from work for qualifying family or medical reasons. Benefits are paid directly by the State of Minnesota, not by employers.

From a tax standpoint, the big question has always been: How are these benefits treated for federal and state income tax purposes?

Originally, the IRS indicated that 50% of paid medical leave benefits would be treated as taxable wages, and reported as third-party sick pay, and subject to federal and state withholding and wage reporting. However, the IRS has now delayed certain federal withholding and reporting requirements until 2027.

Here’s how 2026 will work:

• Paid Medical Leave
  • 50% is still taxable income
  • Not treated as wages or reported on W-2 for 2026
  • Reported on Form 1099-G issued by the State of Minnesota
• Paid Family Leave
  • 100% is taxable income
  • Not considered wages or reported on W-2
  • Also reported on Form 1099-G

Key takeaway: For 2026 only, both paid family leave benefits and the taxable portion of paid medical leave benefits will be reported as taxable income on a 1099-G, not on a W-2.

If you receive MN Paid Leave benefits in 2026:

• You will owe federal and state income tax on those benefits
• Taxes will not be withheld automatically. You may elect to withhold federal and MN taxes from your benefit payments.
• You’ll receive a 1099-G from the state for reporting on your federal and state income tax returns
• You may want to:
  • Adjust withholding from other income
  • Make an election to withhold taxes from benefit payments
  • Make estimated tax payments
  • Plan ahead to avoid an unexpected balance due

This is especially important for individuals and families where household income planning is already top of mind.

For Minnesota employers, this temporary delay simplifies some administrative burdens in 2026 but planning is still essential.

• Employers do not report MN Paid Leave benefits on Form W-2
• Payroll systems should still be reviewed and updated for:
  • Payroll deductions for premiums
  • Required paystub documentation for premiums
  • Employee communications
  • Coordination with payroll providers and HR teams
  • Future changes coming in 2027

The IRS delay applies only to 2026. Beginning in 2027, different federal and state withholding and reporting rules may apply, particularly for paid medical leave treated as wages.

That makes 2026 the ideal year to plan, review processes, and ensure your tax strategy aligns with upcoming changes.

You can click here for information on the state of Minnesota’s official website.

• http://mn.gov/deed/paidleave/
• https://mn.gov/deed/paidleave/employers/
• https://mn.gov/deed/paidleave/employers/faq/
• Small employers | Minnesota Paid Leave

Disclaimer: The information provided here is accurate at the time of publication but may change as laws and regulations evolve. While Froehling Anderson aims to share accurate, timely information, we encourage you to reach out to your relationship manager for guidance on your specific situation.