In early 2025, the Internal Revenue Service (IRS) issued new tax guidance that requires states like Oregon to make changes to how we treat paid leave contributions and benefits for federal tax purposes. In a recent decision (IRS Notice 2026-6), the IRS granted Oregon and other Paid Leave states an extension until 2027 to implement these changes.
What This Means for Employers
Some of you have reached out to ask how this ruling would impact you. You don’t need to take any action related to this IRS ruling and Paid Leave Oregon benefits in 2026.
The IRS ruling does not change how you are currently required to pay or report Paid Leave Oregon contributions. It also does not require you to pay payroll taxes on Paid Leave Oregon medical benefits, nor are you required to include Paid Leave Oregon medical benefits on the Forms W-2 that you issue to employees.
Oregon’s Path Forward
We have been working with the Paid Leave Advisory Committee and plan to take several actions to bring our program into compliance with the ruling before January 2027. These include working with the Oregon legislature on a statutory update in 2026, issuing necessary administrative rules, and implementing program and system updates.
Paid Leave Oregon will continue to keep employers and workers informed and provide guidance as changes are made to ensure compliance with the ruling by January 2027. If you have an equivalent plan, the ruling does not affect your plan. We will have more information soon, but if you have questions, please contact Paid Leave Oregon. If you have general questions about the taxability of your plan’s benefits, please contact a tax professional.
Each state with a Paid Family and Medical Leave program may be responding to the 2025 revenue ruling differently due to differences in individual state programs (e.g. how medical benefits are funded). If you do business in or have employees in other states, we recommend that you contact those states directly to understand any potential impact the 2025 revenue ruling may have on contributions to their programs and benefits.
