A. G. Kalman wrote:

- quote -

After careful consideration, I question only the last. The
PFL deduction is a deductible state tax, so that the GROSS
payment should be Federally taxable.

I suppose it might be allowable to net the tax payment
against the payout, except that there's no direct
relationship between the amount of the payment and the
amount of the payout. The cutoffs for calculution of the
tax and for calculation of the payout are completely
different.

(For additional confusion -- has anyone checked whether the
option for Schedule C self-employed to subject themselves to
SDI makes them eligible for PFL? I haven't looked into
that.)

I may be wrong about Federal taxability of SDI payments.
I'd like to see a specific ruling from a Federal taxing
authority, either the IRS or a Federal court.

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Vida Freeman wrote:
- quote -

See my original reply to Barney's question. PFL payments
are unemployment compensation and will be treated as such by
the feds (taxable) and CA (not taxable). The taxable amount
is the amount in excess of what was paid for the PFL
coverage, as the PFL deduction from pay is after-tax.

--
Alan
http://taxtopics.net

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"JanZtax" <janztax[at]aol.com> wrote
- quote -

Same here. I am sure it is incorrect information. If SDI
were taxable for Federal purposes, obviously there would
have had to be an information return reporting the payments.
I really don't know where Mr. Rubin got his information
that SDI is taxable for Federal purposes. The new Paid
Family Leave payments will likely be taxable, however.

Vida Freeman, EA

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- quote -


I sure hope this is incorrect information or I've prepared an awful lot of
incorrect returns in the last 25 years!

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Barney Byrd wrote:

- quote -

I didn't find anything authoritative, but
http://www.usfca.edu/hr/pdf/USF_PFL_claimform.pdf says
the state has determined benefits are taxable.

- quote -

"Contributions" is sort of a misnomer. It's essentially an
extension of employee-paid SDI. http://www.paidfamilyleave.org
has some more information.

Phoebe

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Barney Byrd wrote:

- quote -

From the CA EDD: (http://www.edd.ca.gov/direp/pflfaq1.asp)

How are Paid Family Leave insurance benefit payments treated
for tax purposes?

The federal Internal Revenue Service (IRS) has informed the
Department that Family Temporary Disability Insurance (FTDI)
payments (also known as Paid Family Leave) are in the nature
of unemployment compensation under Section 85 of the
Internal Revenue Code. The Department must report the FTDI
payments to the IRS on a Form 1099G and, for federal tax
purposes, FTDI payments must be included in a claimant's
gross income.

For some, the fact that the Paid Family Leave program is
employee-funded may reduce the amount of FTDI payments that
must be included in the gross income of the claimant (IRS
regulation 26 Code of Federal Regulations §
1.85-1(b)(1)(iii)). Claimants should contact the IRS or
their tax advisor to obtain additional information.

For state tax purposes, FTDI payments are not taxable. The
Department has received a decision from the state Franchise
Tax Board (FTB) that FTDI payments are not taxable by
California pursuant to Revenue and Taxation Code section
17083.
================================================== ==========
The second paragraph refers to the following unemployment
compensation regulation:

(iii) Employee contributions to a governmental plan. If a
governmental unemployment compensation program is funded in
part by an employee's contribution which is not deductible
by the employee, an amount paid to such employee under the
program is not to be considered unemployment compensation
until an amount equal to the total nondeductible
contributions paid by the employee to such program has been
paid to such employee.
================================================== ================
The PFL program is part of CA SDI. The tax rate (mandatory)
for 2004 is .08% (.0008) of the wage base of $68829 or a
maximum of $55.06. This is in addition to the SDI payment.

Finally, this is another example of where CA tax law
diverges from the federal. More questions for tax preparers
to explain those pesky codes on the W-2........

--
Alan
http://taxtopics.net

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Barney Byrd wrote:

- quote -

I'm afraid not. It's funded by the additional 0.18% SDI,
which is considered a State income tax for Federal purposes.
I don't KNOW specifically what the taxing agencies will
say, but analogy suggests that it is taxed the same as
California SDI payments -- taxable for Federal purposes, but
not for California purposes.

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D`ave Baker's Benefitslink newsletter for August 5 has a link to a Pillsbury
Winthrop article about California's new Paid Family Leave (PFL) program.

http://www.pillsburywinthrop.com/top...d=000068584341

T`he webpage at the above link has a further link to 6-page pdf document
explaining the basic rules and qualifications for PFL. However, it doesn't
address the taxability of PFL benefits. The PW document does say that PFL
is funded entirely by employee contributions, which I assume are all
after-tax. I know that benefits paid from commercial disability insurance
policies funded with employee after-tax contributions are tax-free. Does
anybody know whether PFL benefits will be fully or partially taxable or even
tax-free?

Barney Byrd

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