Paid Family Leave is taxable in California on your federal return but exempt from California state income tax. The IRS treats PFL benefits as unemployment compensation, so every dollar the EDD paid you during the year counts toward your federal taxable income. California specifically excludes those same payments from state tax under Revenue and Taxation Code Section 17083.1Employment Development Department. Paid Family Leave Benefits and Payments FAQs The catch is that the EDD does not automatically withhold federal tax from your checks, so the bill lands all at once in April unless you plan for it.
Why the Federal Government Taxes It
The IRS classifies California PFL as unemployment compensation. That means the full amount goes on your federal return as taxable income, whether you took leave to bond with a new baby, care for a seriously ill family member, or handle a qualifying military event for a relative.2Employment Development Department. Form 1099G FAQs3Employment Development Department. Paid Family Leave
PFL benefits stack on top of your other earnings, so if you were close to the edge of a bracket, they can push part of your income into the next one. The benefits are taxable in the year the EDD paid them, not the year you were on leave. That distinction matters if your claim straddled the end of December into January.
Why California Does Not Tax It
California excludes PFL from state income tax under Revenue and Taxation Code Section 17083. The way that shows up on your return: the PFL dollars that sit inside your federal adjusted gross income get subtracted back out when you file your California return. You make the adjustment on Schedule CA (540), on the unemployment compensation line, column B.4State of California Franchise Tax Board. Paid Family Leave
Form 1099-G and Where It Goes
The EDD sends Form 1099-G showing the total PFL benefits paid to you during the calendar year. It arrives by mail during the last week of January.2Employment Development Department. Form 1099G FAQs The same form is used for unemployment insurance and for disability payments received as a substitute for unemployment, so if you collected more than one type of benefit, they will show up together.5Employment Development Department. Tax Information (Form 1099G)
On the federal side, report the 1099-G amount on Schedule 1 (Form 1040), Line 7, the unemployment compensation line. It flows from there into your total income on Form 1040. Most tax software handles this automatically once you enter the 1099-G. On the California side, subtract the PFL portion on Schedule CA (540) so it drops out of your state taxable income.4State of California Franchise Tax Board. Paid Family Leave
Handling the Federal Tax Bill Before It Hurts
The EDD does not automatically withhold federal income tax from PFL payments. That is the piece most people miss. You can spend weeks receiving benefits with nothing set aside for the IRS, then owe a lump sum the following April.
Two ways to stay ahead of it:
- Request voluntary federal withholding from the EDD. You can set this up before or during your claim by contacting the EDD directly.
- Make quarterly estimated tax payments to the IRS using Form 1040-ES. You can avoid an underpayment penalty if you will owe less than $1,000 at filing, or if your combined withholding and estimated payments cover at least 90 percent of your current-year tax or 100 percent of last year’s tax, whichever is less.6Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
A quick way to size the reserve: multiply your expected total PFL benefits by your marginal federal tax rate. If you expect $8,000 in benefits and sit in the 22 percent bracket, set aside roughly $1,760. Deductions and credits will shift the real number, but the estimate keeps April from being a surprise.
A Note on FICA
The file addresses income tax only. If you want confirmation of how PFL is treated for Social Security and Medicare withholding, check with the EDD or a tax preparer rather than assuming it follows the income-tax rule.