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Washington Updates Paid Family and Medical Leave Premium Split to Align with Federal Tax Guidance
On March 11, 2025, Governor Bob Ferguson signed Second Substitute House Bill 2345 (HB 2345). The new law revises how the Washington Paid Family and Medical Leave (PFML) premium requirements are allocated between employers and employees to address Internal Revenue Service (IRS) guidance.
The bill does not change the total PFML premium amount. Instead, it adjusts how the premium is split between medical leave and family leave for employers participating in the state program:1
- Employers will now be able to deduct the full employee share of the medical leave premium.
- For the family leave premium, employers may deduct up to an amount equal to:
- the total family leave premium plus 45% of the medical leave premium, minus
- the full medical leave premium.
Small employers with fewer than 50 Washington employees remain exempt from paying the employer portion of the PFML premiums.
This adjustment responds to updated federal tax guidance issued last year.2 Because employer contributions for paid family leave are not subject to federal employment taxes, shifting more employer contributions away from medical leave helps avoid creating additional federal tax liabilities.
The bill does not specify when employers must adjust their payroll systems to reflect the new premium split. However, it appears the adjustment will align with the normal annual recalculation schedule. By law, Washington’s Employment Security Department recalculates the premium rate annually in October based on program usage and premiums collected the previous year. The new adjusted rate takes effect on January 1 of the following calendar year. The Department will issue implementation guidance later this year to help employers understand how to transition to the revised premium structure.
Even with this legislative change, employers may still face federal tax implications related to PFML premium contributions. Employers should consult tax professionals to ensure they correctly understand and apply their tax obligations.
