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Voluntary Plan Paid Family Leave Benefits Excludible from Income

This article is reproduced with permission from Spidell Publishing, Inc.

In a precedential decision, the California Office of Tax Appeals (“OTA”) has ruled that over $22,000 in paid family leave benefits received from a voluntary plan administered by a third party, rather than the Employment Development Department (“EDD”), was excludable from gross income.

What is Paid Family Leave?

Under California law, paid family leave is a family temporary disability insurance program that provides up to six weeks of wage replacement benefits in a 12-month period for individuals to care for a seriously ill family member or bond with a new child. Paid family leave is a component of the state’s unemployment compensation disability insurance program and is treated as excludable unemployment compensation under California law (but is taxable on the federal return).

While most paid family leave benefits are received from the EDD, California law allows an employer to use a voluntary plan as a legal alternative to the program administered by the EDD. If amounts are paid into a voluntary plan by the employee, it will be entered as “VPDI’ rather than “DI” on the W-2.

VPDI Qualifies for the Exclusion

While there is no question that paid family leave benefits received from the EDD are excludable from gross income, in Appeal of Jindal, the FTB took the position that paid family leave benefits received from an employer-administered voluntary plan rather than directly from the EDD did not qualify for the exclusion. In this case, the taxpayer’s employer was Google, who had contracted with Prudential to administer its voluntary program, which had been approved by the EDD.

The California Franchise Tax Board (FTB) argued that only benefits paid from voluntary plans administered by the EDD for which a form 1099-G is issued qualify for the exclusion. However, the OTA ruled that there was no legal authority for the FTB’s assertion. The EDD approved Google’s voluntary plan and, therefore the benefits were excludable compensation paid pursuant to a governmental program.

Consider Filing a Refund Claim

It appears from the decision in Jindal that it has been the FTB’s policy to include paid family leave benefits received from a third-party-administered voluntary plan in taxable income. If the taxpayer had previously paid tax on paid family leave benefit is received directly from a third-party voluntary plan and not from the EDD, the taxpayer can consider filing a claim for refund for all open tax years.

For more information about this article, please contact our tax professionals at or toll free at 844.4WINDES (844.494.6337).
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