Why it matters to carriers now
If you employ W‑2 drivers or shop staff in states with Paid Family and Medical Leave (PFML) mandates, the IRS just clarified how to handle federal taxes on PFML contributions and benefits. The clarification, published January 28, 2026, answers long‑standing employer questions as more states roll out PFML programs. For multi‑state fleets and growing small carriers, correct treatment in payroll and year‑end reporting will help you avoid penalties and employee confusion.
What the IRS said
Core rule set (from Revenue Ruling 2025‑4): Family leave benefits paid by a state are taxable income to the employee but are not wages for Social Security, Medicare, or FUTA purposes; states should issue a Form 1099 if annual benefits are $600 or more. Medical leave benefits are split: the portion attributable to the employee’s own contributions is generally excluded from income, while the portion attributable to employer contributions is taxable wages and treated as third‑party sick pay. Employer “pick‑up” of an employee’s required PFML contribution is taxable wages to the employee and reportable on Form W‑2.
Transition relief for 2026 (from IRS Notice 2026‑6): The IRS extended, for calendar year 2026 only, penalty relief and enforcement deferral on withholding and third‑party sick‑pay reporting for state‑paid medical leave benefits to the extent those benefits are attributable to employer contributions. In plain English: states and participating employers get another year before they must apply third‑party sick‑pay mechanics to that slice of medical benefits.
What’s not covered by the 2026 relief: The extension is narrow. It does not change the underlying rule that employer “pick‑up” amounts (when the company pays some or all of the employee’s required PFML contribution) are wages. Revenue Ruling 2025‑4 limited prior relief on pick‑ups to 2025, and Notice 2026‑6 did not extend it—so treat pick‑ups as taxable wages for 2026.
Implications for trucking employers
For large and mid‑size fleets with drivers based across multiple PFML states, expect more 1099s to appear in driver mailboxes for family‑leave benefits and, beginning in 2027 (absent further IRS action), full third‑party sick‑pay handling for the employer‑contribution portion of medical benefits. Smaller carriers operating in one PFML state should verify how their state PFML agency will implement the federal rules in 2026—several state programs are updating instructions now that the IRS has acted.
Quick guide: who withholds and what gets reported
- Employee PFML contributions: Withheld after tax; included in taxable wages like regular pay. If you “pick up” the employee share, that pick‑up is taxable wages and must appear on the employee’s Form W‑2 in 2026.
- Employer mandatory PFML contributions: Deductible business expense for the company; not taxable to the employee.
- State‑paid family leave benefits: Taxable income to the employee; not subject to FICA/FUTA; generally reported by the state on Form 1099 if ≥ $600 in a year.
- State‑paid medical leave benefits: Employee‑share portion is generally not taxable; employer‑share portion is taxable wages and treated as third‑party sick pay—but IRS enforcement of withholding/reporting for that employer‑share portion is deferred through December 31, 2026.
Action checklist for owner‑operators and fleet managers
- Map your footprint: Identify where you have W‑2 employees performing services; PFML rules apply based on the state program, which may differ from a driver’s home base.
- Update payroll coding: Work with your payroll provider to flag PFML deductions and benefits correctly, including W‑2 treatment of any employer pick‑ups starting January 1, 2026.
- Coordinate with state PFML agencies: Watch for 2026 state guidance on how they will issue 1099s and whether they’ll mirror the federal transition relief for medical benefits.
- Educate your teams: Make sure drivers and dispatchers know that family leave benefits are taxable and may generate a 1099, while some medical benefits could be partially taxable depending on funding source.
- Review private plan alternatives: Some PFML states allow insured or self‑funded private plans in lieu of the state fund. Confirm how federal tax rules would apply if you go that route in the future.
Bottom line for 2026: Keep withholding and reporting PFML exactly as you did in 2025 for state‑paid medical benefits attributable to employer contributions, thanks to the new extension—but switch on W‑2 wage treatment for any employer pick‑ups this year. Begin testing third‑party sick‑pay processes in payroll so you’re ready if full enforcement begins January 1, 2027.
Sources Consulted: Mercer; Internal Revenue Service (Notice 2026‑6; Revenue Ruling 2025‑4).
Need to file your Form 2290?
Join thousands of owner-operators and carriers who trust HeavyTax.com for fast and easy HVUT e-filing.
This article was prepared exclusively for truckstopinsider.com. For professional tax advice, consult a qualified professional.
