What’s changing for Colorado fleets on January 1, 2026
Colorado’s Family and Medical Leave Insurance (FAMLI) program will expand benefits and tweak funding in 2026, with two headline changes for employers: (1) up to 12 additional weeks of paid leave for parents while a newborn receives inpatient care in a neonatal intensive care unit (NICU), and (2) a slight premium decrease to 0.88% of wages for 2026 (split 50/50 between employer and employee for most employers). These updates were enacted in SB 25-144 and apply to claims arising on or after January 1, 2026. Future premium rates will be set annually by the FAMLI Division director, capped at 1.2%.
Importantly, the NICU expansion stacks on top of existing FAMLI entitlements. In practice, a covered parent could access 12 weeks for bonding plus an additional 12 weeks for NICU care (and Colorado law already allows up to four extra weeks for certain pregnancy/childbirth complications), meaning some workers could reach well beyond 12 weeks of wage replacement during a benefit year.
IRS tax guidance: how to treat premiums and benefits
The IRS issued Revenue Ruling 2025-4, published in the Internal Revenue Bulletin on February 10, 2025, clarifying federal income and employment tax treatment for state paid family and medical leave programs like Colorado FAMLI. Key points: family leave benefits are taxable to the employee but are not wages for FICA/FUTA/withholding and are reported on Form 1099 by the paying state; medical leave benefits are generally excludable from income to the extent attributable to the employee’s own contributions but are taxable—and subject to Social Security and Medicare taxes—when attributable to employer contributions, with W-2 reporting under the third-party sick pay framework.
For payroll teams still adapting systems, the IRS has extended transition relief for one component of the rules: for calendar year 2026, states and employers won’t be penalized for not applying certain federal withholding, FICA, and related information-reporting rules to the portion of state-paid medical leave benefits attributable to employer contributions. This does not change the treatment of family leave benefits or employer “pick-up” of an employee’s required contributions, which must still be treated as wages.
Why this matters to trucking operations
For fleets based in Colorado—or with Colorado-domiciled drivers or support staff—the NICU expansion raises the likelihood of longer absences you’ll need to cover with relief drivers and dispatchers. The small premium rate change should be reflected in 2026 payroll setups and budgeting. Multi-state carriers should also ensure their tax and HR systems can distinguish between family and medical leave benefits for federal reporting, especially if you run comparable private plans.
Private-plan and opt-in nuances
Colorado allows employers to satisfy FAMLI via approved private plans (fully insured or self-insured) that provide at least equal benefits. Plans require state approval, must not cost employees more than the state plan, and—if self-insured—must keep a separate account for employee contributions. Annual attestations are required. If you’re considering a private plan to align with existing short-term disability or paid parental leave, confirm plan terms reflect the 2026 NICU benefit and rate.
Owner-operators should note: independent contractors are not automatically covered, but self‑employed Coloradans may voluntarily opt in, paying 0.45% (employee share) for at least three years; after opting in and paying for a quarter, they can claim FAMLI benefits like W‑2 workers. Fleets using mixed W‑2/1099 models should communicate clearly about who is covered and how to opt in.
Action checklist for fleet managers and owner-operators
- Update payroll for 2026: reduce the FAMLI premium rate to 0.88% and confirm the employer/employee split. Validate that your HCM/payroll vendor can apply IRS rules that distinguish family (1099) vs. medical (W-2 wages if employer-funded) benefits.
- Refresh policies, postings, and handbooks: reflect NICU leave availability starting January 1, 2026, and ensure required FAMLI notices are posted and your leave administration processes align with state rules.
- Capacity planning: identify backfill strategies for long-haul routes and shop operations during extended NICU-related leave. Consider cross-training drivers and dispatch to reduce service disruptions.
- Audit private plans: if you use (or are pursuing) a private plan, confirm equivalency with the new NICU benefit and maintain required separate accounts/bonds for self-insured options. Calendar any annual attestations.
- Clarify coverage for contractors: communicate opt-in mechanics for self‑employed drivers domiciled in Colorado and how FAMLI interacts with any company-sponsored benefits.
- Track evolving IRS compliance: apply the extended 2026 transition relief for medical benefits, but don’t delay configuring W‑2 reporting for employer “pick‑up” contributions and Form 1099 processes for family benefits.
Bottom line for trucking: budget for a small premium decrease, prepare for longer NICU-related leaves beginning January 1, 2026, and tighten your payroll and reporting so IRS treatment of premiums and benefits is correctly applied in 2025–2026. Doing this now should minimize claim delays for your people and reduce compliance headaches during peak season.
Sources Consulted: National Law Review; Jackson Lewis; Littler; NFP; IRS; Colorado Department of Labor and Employment (FAMLI Division); EY; PwC.
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This article was prepared exclusively for truckstopinsider.com. For professional tax advice, consult a qualified professional.
