What changed — and why it matters to trucking
The IRS issued Revenue Ruling 2025-4 on January 15, 2025, clarifying how federal income and employment taxes apply to state paid family and medical leave (PFML) programs. In response, Massachusetts’ Department of Family and Medical Leave (DFML) released guidance aligning its program with the ruling. The bottom line: starting January 1, 2026, portions of state-paid medical leave benefits will be treated like third‑party sick pay wages for Social Security and Medicare (FICA) and Federal Unemployment Tax Act (FUTA) purposes, while family leave benefits will not be subject to FICA/FUTA. For fleets and carriers with Massachusetts drivers—and owner-operators who’ve opted into PFML—this shifts who withholds, who remits, and how those amounts get reported.
Key tax rules effective January 1, 2026
- Medical leave benefits: The portion attributable to the employer PFML contribution is taxable as third‑party sick pay wages. DFML will withhold the employee’s share of FICA on that taxable portion, and employers with 25+ employees must remit the employer FICA and FUTA on those amounts.
- Family leave benefits: Included in federal gross income but not considered wages for federal employment tax purposes (no FICA/FUTA). DFML reports family leave benefits on Form 1099‑G.
- Small employers: If you have fewer than 25 employees, PFML medical leave benefits paid to your workers are typically not subject to FICA withholdings; you have no employer PFML contribution obligation.
- Self‑employed owner‑operators who opt in: You pay the full PFML contribution rate and will be responsible for tax reporting on the employer‑attributable portion of medical leave benefits.
- Transition relief: For calendar year 2025, the IRS provided relief from certain withholding, payment, and information‑reporting requirements for the employer‑attributable portion of medical leave benefits. The new rules apply beginning January 1, 2026.
How this plays out on your payroll
Massachusetts requires employers with 25 or more covered individuals to fund at least 60% of the medical leave contribution; workers can be charged up to 40% via payroll withholding. As a result, when DFML pays medical leave, 60% of that benefit (the employer‑funded share) is generally the “taxable third‑party sick pay” base for FICA/FUTA and W‑2 reporting. DFML will continue to issue daily Sick Pay Reports in the employer portal so payroll can book wages and taxes accurately. Example from DFML: on a $1,000 medical leave payment, $600 is taxable third‑party sick pay; the employer owes its FICA/FUTA on $600, DFML withholds the employee FICA on that $600, and the employer reports that amount on the worker’s W‑2.
Who’s covered in trucking
MA PFML applies broadly to employers with at least one employee working in Massachusetts—including out‑of‑state motor carriers with Bay State drivers on payroll. Small fleets under 25 employees have no employer contribution, but still must withhold and remit employee contributions through MassTaxConnect. Owner‑operators who elect coverage pay both the family and medical contributions and are subject to the same tax framework when they receive medical leave benefits.
Action checklist for fleet managers and owner‑operators
- Confirm PFML headcount status. If you have 25+ employees, budget for employer FICA/FUTA on the taxable portion of DFML medical leave benefits beginning January 1, 2026.
- Get into the DFML Employer Portal. Ensure payroll has Leave Administrator access to download daily Sick Pay Reports for W‑2 wage/tax mapping.
- Update payroll systems. Set up earnings codes for “third‑party sick pay—state PFML (employer‑funded portion)” and map employee/ employer FICA and FUTA accordingly; remember, family leave has no FICA/FUTA. Consult Publication 15‑A mechanics as needed.
- Train HR/dispatch. Make sure managers understand that DFML, not the carrier, issues the benefit; but the carrier may still owe employer taxes and W‑2 reporting on the taxable portion of medical leave benefits.
- Owner‑operators: If you’ve opted into PFML, plan for both contributions and future tax reporting on any medical leave benefits you receive.
- Watch the clock. 2025 enjoys transition relief; the new withholding and reporting rules start January 1, 2026.
Rates and budgeting notes
For 2026, the total PFML contribution remains 0.88% of eligible wages for employers with 25+ covered individuals (with at least 60% of the medical portion paid by the employer). Small employers remit 0.46% (employee‑paid). Plan now to reflect these costs in 2026 budgets and bids.
Bottom line for trucking: PFML medical leave payments will carry new payroll tax responsibilities for many Massachusetts fleets starting January 1, 2026. Lock down your DFML portal access, coordinate with your payroll provider, and inform drivers so there are no surprises when a leave hits mid‑route.
Sources Consulted: IRS Newsroom; Internal Revenue Bulletin; Massachusetts Department of Family and Medical Leave (Mass.gov); NFP; Fisher Phillips; HRMA of Western New England.
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This article was prepared exclusively for truckstopinsider.com. For professional tax advice, consult a qualified professional.
