Yes, Paid Leave Oregon benefits are taxable, but how much you owe depends on which type of leave you took. Family leave and safe leave payments are fully included in your federal gross income. Medical leave payments are only partially taxable, because the share funded by your own after-tax payroll contributions is excluded. Oregon used to offer a state-level subtraction that shielded these benefits from state income tax, and that subtraction is gone starting with the 2025 tax year.1Oregon Department of Revenue. Publication OR-17, Oregon Individual Income Tax Guide The federal rules were formalized in IRS Revenue Ruling 2025-4, effective for payments made on or after January 1, 2025.2IRS. Revenue Ruling 2025-4
One thing that is true across every type of Paid Leave Oregon benefit: the payments are not wages for federal employment tax purposes. No Social Security or Medicare tax comes out. And nothing is withheld for federal income tax automatically unless you ask for it.2IRS. Revenue Ruling 2025-4 That is helpful on the FICA side and a trap on the income tax side, because the bill lands all at once when you file.
Family Leave and Safe Leave Are Fully Taxable
If you took leave to bond with a new child, care for a family member with a serious health condition, or address issues related to domestic violence, harassment, sexual assault, or stalking, the entire benefit is federally taxable. There is no exclusion, no partial exemption.2IRS. Revenue Ruling 2025-4
You will receive a Form 1099-G reporting these payments.3Paid Leave Oregon. Tax Documents – Paid Leave Oregon The form looks like the one used for unemployment compensation, but these benefits are not unemployment. Revenue Ruling 2025-4 makes clear that Section 85 of the tax code, which governs unemployment, does not apply.2IRS. Revenue Ruling 2025-4 Report family and safe leave benefits on Schedule 1, line 8z (other income), not line 7. Tax software that auto-routes 1099-G amounts to the unemployment line may need a manual fix.
Medical Leave Is Only Partially Taxable
Medical leave benefits, which cover your own serious health condition, get better treatment. Under Section 104 of the Internal Revenue Code, you can exclude amounts received through accident or health insurance to the extent the coverage was paid for with your own after-tax dollars.4Office of the Law Revision Counsel. 26 U.S.C. 104 – Compensation for Injuries or Sickness Paid Leave Oregon is funded by payroll contributions, and the employee share is withheld from wages that have already been taxed, so those contributions count as after-tax.
The math tracks the funding split. For 2026, the program’s total contribution rate is 1% of gross wages up to $184,500. At employers with 25 or more workers, employees pay 60% of that rate and the employer pays 40%.5Paid Leave Oregon. Employers – Paid Leave Oregon Roughly 60% of your medical leave benefit is tax-free and 40% is taxable if you work for a large employer.
Small-employer workers can do even better. Employers with fewer than 25 workers are not required to pay the employer share.5Paid Leave Oregon. Employers – Paid Leave Oregon If your employer contributed nothing, the entire medical leave benefit traces back to your own after-tax payments, and none of it is federally taxable. If you worked for more than one employer during the benefit year, the taxable share reflects how much each contributed relative to the total.
Medical leave benefits come to you on a Form 1099-MISC.3Paid Leave Oregon. Tax Documents – Paid Leave Oregon Report the taxable portion on Schedule 1, line 8z. If you took more than one type of leave, you may receive both a 1099-G and a 1099-MISC. If the taxable amount on your 1099-MISC looks wrong given your employer situation, contact Paid Leave Oregon before filing.
Oregon State Tax: The Subtraction Is Gone
For tax years before 2025, Oregon offered a subtraction (Code 386 on Schedule OR-ASC) that removed Paid Leave benefits from state taxable income even though they were included in federal AGI. That subtraction no longer exists. Oregon’s 2025 Publication OR-17 states plainly that “the subtraction for certain Paid Leave Oregon benefits is no longer available.”1Oregon Department of Revenue. Publication OR-17, Oregon Individual Income Tax Guide
Because your Oregon return starts from your federal figures, the benefits are now taxable at the state level to the same extent they are taxable federally. Family and safe leave: fully taxable on your Oregon return. Medical leave: partially taxable, because the federal exclusion happens before Oregon’s calculation begins. No separate entry on Form OR-40 is needed; the federal amounts flow through. If you filed prior-year Oregon returns using Code 386, do not carry that habit into 2025 or later returns.
Withholding and Estimated Tax
Since Paid Leave Oregon does not withhold income tax automatically, a lump of tax can come due at filing time. Oregon’s rules allow you to elect voluntary withholding of federal or state income tax from your benefit payments. Setting that up at the start of a leave is simpler than catching up later.
If you skip withholding, estimated tax payments may be needed to avoid an underpayment penalty. The IRS generally expects estimated payments if you will owe $1,000 or more after subtracting withholding and refundable credits. You avoid the penalty by paying, over the year, at least the smaller of 90% of your current-year tax or 100% of the prior-year tax. If your prior-year AGI was more than $150,000 ($75,000 if married filing separately), the prior-year safe harbor rises to 110%.6IRS. 2026 Form 1040-ES – Estimated Tax for Individuals
Paid Leave Oregon benefits can run up to 12 weeks in a 52-week period, with up to two additional weeks available for pregnancy-related conditions.7Paid Leave Oregon. Paid Leave Oregon Twelve weeks of income with no tax taken out is enough to matter. Running the numbers early is worth the hour.
Deducting Your Employee Contributions
Revenue Ruling 2025-4 classified mandatory employee contributions to state paid leave programs as payments of state income tax.2IRS. Revenue Ruling 2025-4 If you itemize, you can deduct these contributions on your federal return under Section 164(a)(3), subject to the federal cap on state and local tax deductions. Your employer reports the total withheld in Box 14 of your W-2. That is informational; the contribution amounts are still included in your Box 1 wages, which is exactly why they count as after-tax and why the medical leave exclusion works later.
If you take the standard deduction, you cannot separately deduct the contributions. The after-tax treatment still benefits you through the medical leave exclusion when you eventually collect benefits.
Private Equivalent Plans Are a Separate Question
Some Oregon employers use approved private plans instead of the state program. Revenue Ruling 2025-4 explicitly does not address the federal tax treatment of contributions to or benefits from private or self-insured family and medical leave plans.2IRS. Revenue Ruling 2025-4 If your employer uses a private equivalent, the rules above may not apply the same way. Ask your employer or plan administrator how their plan reports and taxes benefits, and consider a tax professional; the IRS has not issued specific guidance for these arrangements.