California Paid Family Leave is taxable on your federal return but exempt from California state income tax. The IRS treats every dollar EDD pays you as gross income, while California specifically excludes those benefits from state taxable income. Because EDD does not withhold federal tax from PFL checks by default, many recipients face an unexpected bill at filing time.
Federal Tax on PFL Benefits
The IRS includes PFL benefits in your federal gross income. Revenue Ruling 2025-4, issued in early 2025, confirmed that state paid family leave benefits are a “clearly realized accession to wealth” taxable under Internal Revenue Code Section 61.1Internal Revenue Service. Revenue Ruling 2025-4
The same ruling confirmed that PFL benefits are not wages for federal employment tax purposes. No Social Security tax, no Medicare tax, and no federal income tax withholding is required from PFL payments.1Internal Revenue Service. Revenue Ruling 2025-4 You keep more of each check, but the benefits also don’t add to your Social Security earnings record, and nothing is set aside for the tax the IRS will still expect.
California State Tax Exemption
California does not tax PFL benefits. On your state return, you subtract the PFL amount that was included in your federal adjusted gross income by making an adjustment on the unemployment compensation line of Schedule CA (540).2Franchise Tax Board. Paid Family Leave The subtraction goes in Column B of Schedule CA. Most tax software handles this automatically once the 1099-G is entered. Skip it and you overpay the state.
The Form 1099-G From EDD
For any year in which you received PFL, EDD issues a Form 1099-G reporting the total paid. The form is available by January 31 of the following year, and EDD mails a paper copy unless you opted into paperless delivery through your online account by December 27.3Employment Development Department. Tax Information (Form 1099G) You can view and download the form through your myEDD portal for up to five years.
If the amount on your 1099-G doesn’t match your payment history, log into myEDD and check the record. If the numbers still look wrong, call EDD’s PFL line at 1-877-238-4373 to request a correction.4Ask EDD. What if I don’t agree with the amount on my Form 1099G The IRS receives the same 1099-G data, so filing a return that doesn’t match is a reliable way to trigger correspondence.
Where PFL Goes on Your Returns
On your federal return, report the amount from your Form 1099-G on Schedule 1 (Form 1040), line 7, labeled “Unemployment compensation.”5Internal Revenue Service. Schedule 1 (Form 1040) – Additional Income and Adjustments to Income EDD reports PFL on Form 1099-G, and that’s where the IRS currently expects to see it. The Schedule 1 total flows to line 8 of your Form 1040.
On your California return, enter the same PFL amount as a subtraction on Schedule CA (540) so it isn’t taxed at the state level.2Franchise Tax Board. Paid Family Leave
How to Avoid a Tax Bill in April
This is where most PFL recipients get caught. EDD does not withhold federal income tax from PFL payments by default. If PFL is your only income for several weeks, you can collect for months with nothing set aside for the IRS. Two tools help.
Voluntary Withholding
You can submit IRS Form W-4V to have 10% of each PFL payment withheld for federal income tax.6Internal Revenue Service. Form W-4V Voluntary Withholding Request Ten percent is the only rate available; you cannot choose a different percentage. Submit the completed form to EDD, not the IRS.
Estimated Tax Payments
If you’d rather handle it yourself, the IRS uses four estimated-payment periods:7Internal Revenue Service. Estimated Tax
- January 1 – March 31: payment due April 15
- April 1 – May 31: payment due June 15
- June 1 – August 31: payment due September 15
- September 1 – December 31: payment due January 15 of the following year
You can skip estimated payments and avoid an underpayment penalty if your total tax owed after withholding and credits is less than $1,000. You’re also safe if you paid at least 90% of the current year’s tax or 100% of the prior year’s tax, whichever is smaller. If your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the prior-year threshold rises to 110%.8Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
For someone collecting PFL for a few weeks while still employed the rest of the year, employer withholding on regular wages usually covers the shortfall. The risk is highest when PFL replaces your entire income for an extended stretch and you have no other withholding source.
Effect on the EITC and Child Tax Credit
PFL benefits raise your federal adjusted gross income, which can push you past thresholds for income-sensitive credits. Two are worth watching.
PFL is not earned income for the Earned Income Tax Credit. You cannot use it to qualify for or increase the EITC, but the added gross income can still shrink or phase out a credit you would otherwise receive.
The refundable portion of the Child Tax Credit — the Additional Child Tax Credit — requires at least $2,500 in earned income.9Internal Revenue Service. Child Tax Credit PFL doesn’t count toward that threshold. If you took a full year off and PFL was your only income, you would not meet the earned-income minimum for the refundable credit, though the non-refundable portion can still reduce federal tax you owe.
Employer Top-Up Pay Is Different
Many California employers supplement PFL to bring workers closer to full salary during leave. That top-up is ordinary wages. Your employer withholds federal and state income tax, Social Security, and Medicare from it, and the amount appears on your W-2 rather than your 1099-G. It also counts as earned income for the EITC and Child Tax Credit. Keep the two documents separate: PFL from EDD sits on the 1099-G, and any employer supplement is folded into your W-2 wages.