MN Paid Leave Law

 Minnesota’s Paid Leave Program is now accepting applications. Originally passed in 2023 as Minnesota Paid Family Medical Leave (now branded simply as Minnesota Paid Leave), this program will help countless workers in Minnesota afford the time to care for themselves and/or a family member. Minnesota’s unions and community partners, including AFSCME Council 5, strongly advocated for more than a decade to make this law a reality. It will be transformational for tens of thousands of workers. Countless members of our union testified in support of this new law. 

We have some really important updated to share on this new leave program that are below.

How does this Paid Leave work?

The Minnesota Paid Leave Law will function in a similar manner to the state's unemployment insurance program, offering workers partial wage replacement for a qualifying life events. Qualifying events fall into two separate buckets.

1. Family Leave and Medical Leave – with each category providing up to 12 weeks of paid time off, or 20 weeks of combined paid time off when both a family leave and medical leave qualifying event occur.

Family Leave includes:

  • Time to care for a family member with a serious health condition
  • Time to bond with a new child in the family’s home (birth, adoption, foster care placement)
  • Military family leave, to support a family member called to active duty and
  • Safety Leave (time to respond to domestic assault, sexual assault, stalking etc.).

2. Medical Leave is:

  • Time to care for yourself for a qualifying medical event lasting at least 7 days.

DID YOU KNOW…

In the case of Bonding Leave, you have 12 months from the time of the qualifying event (birth, adoption or foster care placement) to use your bonding leave. That means, that even if your child was born in 2025, you can access the Paid Leave benefit in 2026. Better yet, even if you took time off from work in 2025, using an employer sponsored Paid Parental Leave benefit, you are still eligible to access the new state Paid Leave Program for the same bonding leave qualifying event! This is a huge benefit for workers and our union is determined to ensure all workers know this is available.

How is Minnesota Paid Leave paid for?

Long term, this program will be funded through a direct payroll premium, meaning employers and employees will contribute a percentage of payroll directly into the Paid Leave account; employers are responsible for making these payments on a quarterly basis, with the first payments due in April 2026.

However, the 2023 legislature also set aside a significant appropriation to ensure funding will be available immediately in January 2026. The law requires employers to pay for at least 50% of the payroll tax and permits employers to withhold employee earning for the other 50% of the payroll tax. The law does allow employers to cover the full amount of the payroll tax, and some employers are doing that, some are not. Currently, the cost of the payroll premium is 0.88% of pay.

If an employer’s policy is to split the premium 50/50 with employees, the individual employee will see 0.44% of their pay withheld by their employer (approximately $5/week for someone making $60,000 annually). Employers will have to notify their employees by December 1st of this year with their policy regarding the payroll premiums.

Toolkit / Helpful Resources

Thank you and please share this information to everyone in your networks so they are aware of their rights and their benefits under this new law.

IRS Updates 2026 tax guidance for Paid Leave benefits 

On Friday, December 19th, the federal Internal Revenue Service (IRS) changed its guidance regarding federal tax treatment for state Paid Leave programs in 2026. Specifically, it delayed certain federal tax withholding and reporting requirements for paid Medical Leave until 2027. This should simplify tax compliance requirements for Minnesota employers in 2026. 

The initial guidance from the IRS on the taxability of Paid Leave benefits is outlined in Revenue Ruling 2025-4. Thedecision to delay implementation is outlined in IRS Notice 2026-6. 

As a result of this new guidance, Medical Leave benefits received in 2026 will not be treated as “third-party sick pay” for 2026 and do not need to be reported on an employee’s W-2. 

Are Paid Leave benefits considered wages? 

Not for 2026. The IRS has delayed implementation of new requirements until 2027. Benefits do not need to be considered wages and do not need to be reported on an employee’s W-2.  

Are Family Leave benefits considered income? 

Yes, 100% of Family Leave benefits are considered income.  

Are Medical Leave benefits considered income? 

Only the portion of Medical Leave benefits that is attributable to an employer is considered income.  

The amount attributable to the employer is based on an employer’s required premium calculation. Because most employers are required to pay at least half of the total premium, 50% of benefits paid to an employee are considered income. For small employers, only 33% of benefits paid to an employee are considered income.  

Paid Leave will issue a 1099G to the employee at the end of the year on the portion of the Medical Leave benefit attributable to the employer. 

The remaining portion (the amount attributable to the employee contribution) is excluded from the employee's federal gross income and is not taxable.   

Can employees withhold state and federal income taxes from benefit payments? 

When Minnesotans apply for Paid Leave, they will have the option to withhold state and federal taxes from their weekly benefit. If an employee chooses this option, Minnesota Paid Leave will withhold 5% for state taxes and 10% for federal taxes. These are reductions set in Minnesota statute, not by the IRS. 

What is the employer’s responsibility for Medical Leave benefits for 2026?

The employer has no tax responsibility for Medical Leave benefits for 2026.  

What is the employer’s responsibility for Family Leave benefits for 2026?  

The employer has no tax responsibility for Family Leave benefits for 2026.  

Do Paid Leave benefits need to appear on an employee’s W-2?  

Not for 2026. 

Are premiums tax-deductible for the employer? 

Employers may deduct their premium contributions as an excise tax under §164.

If an employer pays more than the required minimum share of the premium, they can deduct this additional contribution as an ordinary and necessary business expense under §162. The employer must include this additional contribution as wages on the employee’s W-2.  

Are premiums tax-deductible for the employee? 

If an employee itemizes deductions on their federal income tax return, they may deduct the full amount they pay, or that the employer pays on their behalf (up to .44% of wages), as state income tax under §164.   

If an employer pays more than the required minimum share of the premium, this is additional compensation to the employee and is included in the employee’s federal gross income as wages. Employees may deduct this additional contribution by the employer as state income tax under §164, if the employee itemizes deductions on their federal income tax return. These deductions apply only to the extent that they do not exceed the state and local taxes (SALT) deduction limitation provided under §164(b)(6). 

How will premiums be treated on an employee’s W-2? 

The employee’s portion of the premium is a post-tax deduction from their pay.  

The employer’s required portion of the premium does not increase or decrease the employee’s taxable wage as reported in W-2 boxes 1,3,5. If the employer picks up an additional portion of the premium, then that amount must be reported as wages paid.  

Employers must put the amount of the employee contribution and the amount of the employer pickup contribution in box 14 of the W-2. The label should be MNPFML. If you plan to split out Medical Leave and Family Leave benefits you can add each amount and include MNPML and MNPFL respectively. 

How will this guidance change in 2027? 

Based on current IRS guidance, starting in 2027, the portion of Medical Leave benefits attributable to the employer will be considered wages. 

The share of Medical Leave benefits that count as wages will be treated as third-party sick pay, as described by the IRS in Notice 2015-6. This portion of the benefit is subject to federal income tax withholding, Social Security, Medicare and Federal Unemployment Tax Act (FUTA) taxes. 

The state will deduct Social Security and Medicare taxes from the claimant and send them to the IRS on the same frequency they send payroll tax deposits. The state will provide information about these payments to the employer on a frequent basis so the employer can pay their portion of Social Security and Medicare taxes. The employer will need to include these payments as wages on the W-2 they issue to the employee. 

For more information

You can find more information on taxes our website: Taxes and Paid Leave | Minnesota Paid Leave