IRS Extends Transition Relief for State Paid Family and Medical Leave Programs Through 2026

On December 19, 2025, the IRS released Notice 2026-06, extending by one additional year the transition period established in Revenue Ruling 2025-4 for certain employment tax and reporting obligations related to state paid family and medical leave (PFML) programs. As a result, calendar year 2026 will be treated as a continued transition period with respect to medical leave benefits paid by a state that are attributable to employer contributions. During 2026, states and participating employers will not be required to comply with federal income tax withholding, employment tax, or related information-reporting requirements applicable to third-party sick pay for that portion of PFML medical leave benefits, and will not be subject to associated penalties for noncompliance.

The IRS explained that the extension is in response to requests from states administering PFML programs that need additional time to update systems, budgets, and reporting processes to align with the federal tax treatment clarified in Revenue Ruling 2025-4. Importantly, the notice does not extend transition relief related to voluntary employer “pick-up” contributions, which remain subject to federal employment tax and reporting requirements. Employers participating in state PFML programs should continue coordinating with payroll providers and monitoring IRS guidance to ensure compliance once the transition period ends after calendar year 2026. Further, nothing changes that the original advice of Revenue Ruling 2025-4 only applies to public plans and not private plans.