By Marissa Ventrelli | SOURCE: COLORADO POLITICS
Gov. Jared Polis joined governors from eight other states in urging IRS Commissioner Daniel Werfel to provide guidance on the taxability of Family and Medical Leave Insurance, or FAMLI, benefits to avoid double taxation.
“As states operating these programs, we urge the Internal Revenue Service to provide clarifying guidance in this area, specifically regarding the taxability of these benefits and premiums, and to prevent the risk of double taxation,” said a Jan. 18 letter signed by the state leaders. “The current absence of guidance from the IRS on the tax treatment of these programs creates a substantial risk of an unexpected and large tax liability for those who rely on these programs to take family leave, deal with a personal illness, or take care of vulnerable family members.”
The letter stressed that “these programs generally operate as social insurance programs, not allowing a deduction for premiums and taxing benefits effectively represents double taxation.”
“While taxation of wage replacement is consistent with IRS’ treatment of other programs, in its clarifying guidance, the IRS should ensure that program participants are not taxed on both mandatory premiums paid and benefits received,” the letter continues. “In general taxation on benefits received makes more sense than taxation on monthly premiums, which should not be considered taxable income.”