Is Massachusetts Paid Family Medical Leave Benefit Taxable for Federal Taxes?

Question

Massachusetts has a Paid Family & Medical Leave (PFML) program that state employers and employees contribute to. Residents can claim the benefit and if they get paid from it, they receive a 1099-G that provides the amount of the benefit received in Box 1. The 1099-G normally is for unemployment compensation, however in this case, the Box 1 says "Paid Family Medical Leave Benefit".

Is the MA PFML benefit taxable at the federal level?

Massachusetts' own website claims the IRS has not yet made a determination on whether this benefit is taxable income, but the page is listed as published on November 18, 2021 (as of the access date at the time this question was posted), so it may be out of date. Various other chatter on the internet seems to indicate many others are confused about this point as well.

I can find no official statement from the IRS on this matter and I'm thinking three options are possible.

1. This is just another form of unemployment compensation and like all income reported on a 1099-G, it should be added to line 7 of Schedule 1.
2. This should be added to line 8z of Schedule 1 as "other income".
3. This is not taxable income (at the federal level) and does not need to be accounted for anywhere.

Which is correct?

Answer 1

This website suggests that the benefit is taxed for income tax purposes, but not for payroll tax purposes. I.e.: you report it as misc. income (line 8z on Schedule 1). This is not unemployment income (which is funded through FUTA), so you should not report it on line 7.

Answer 2

Seems like it is still unsettled. I copied the text below from the mass.gov website, on 12/22/22 ( https://www.mass.gov/info-details/taxes-on-paid-family-and-medical-leave-pfml-benefits ):

Taxability of PFML Benefits

As of December, 2022, the IRS has not yet made a ruling on whether your PFML benefits are considered “taxable income.” Massachusetts tax treatment will follow the guidance provided by the IRS.

Employees have the option when applying to have state and federal taxes withheld from their weekly benefit. If an employee chooses this option, DFML will withhold 5% for state taxes and 10% for federal taxes. These are reductions DFML has set, not the IRS.

If you choose to have taxes withheld (5% for state and 10% for federal), these percentages cannot be adjusted once your application is approved.

If you're unsure whether you want to withhold taxes, we recommend speaking with a tax professional about how IRS decisions could affect your personal tax liability. We cannot offer guidance or advice for individual tax situations.