Are PFML benefits from 2022 actually taxable? IRS notice claims I owe taxes on them!

So I'm freaking out a bit here. My partner received about $16k from the Paid Family Medical Leave program in 2022 (the employee-paid version). When we filed taxes using TurboTax, the software specifically indicated these benefits were NOT taxable income, so we proceeded with filing as directed. Fast forward to today - we just got this scary notice from the IRS claiming we owe $5,300 in back taxes specifically because of these PFML benefits! The notice states the benefits have been "determined to be taxable income" which completely contradicts what the tax software told us. Has anyone dealt with this situation before? The IRS is claiming these benefits are suddenly taxable when the guidance seemed to say otherwise. Is there any way to challenge this ruling or are we just stuck paying this massive unexpected tax bill? Has the tax status of PFML benefits changed retroactively or something? Any advice would be hugely appreciated!

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19 comments

GalaxyGlider

•8M

This is unfortunately a confusing area that tripped up a lot of people. The taxability of PFML benefits depends on whether the premiums were paid with pre-tax or post-tax dollars. If your partner paid PFML premiums with post-tax dollars, then the benefits would indeed be tax-free. But if the premiums were paid with pre-tax dollars (which is common in many employer plans), then the benefits are considered taxable income. TurboTax likely made an assumption about how the premiums were paid without asking the right questions. This is pretty common with automated tax software when dealing with less common situations like PFML.

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GalaxyGlider

•8M

Just because it was deducted from the paycheck doesn't automatically make it post-tax. You'd need to check his W-2 from 2022 - specifically look at Box 1 (Wages, tips, other compensation). If the PFML premiums were paid post-tax, they would be included in this box. If they were paid pre-tax, the amount in Box 1 would be lower because pre-tax deductions reduce your taxable wages. Another way to check is to look at his final paystub from 2022 and compare the "Year-to-date gross wages" with the "Wages, tips, other compensation" on the W-2. If they don't match, the difference likely includes pre-tax deductions.

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Mei Wong

•8M

I went through something similar with state disability benefits. I found a great service called taxr.ai (https://taxr.ai) that actually helped me figure out how my benefits should have been taxed. They analyzed my tax documents and paystubs to determine if my premiums were paid pre-tax or post-tax, which is exactly what you need to know in this situation. In my case, they found that my premiums were actually paid post-tax, so my benefits should have been tax-free. I was able to use their analysis to challenge the IRS notice I received and saved over $3k. Their system is surprisingly good at catching these kinds of technical details that TurboTax missed.

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Mei Wong

•8M

Their system is actually pretty straightforward - you upload your tax forms, W-2s, paystubs, and any IRS notices you've received. Their AI analyzes all the documents together to identify inconsistencies and technical issues. It's surprisingly thorough at checking things like whether deductions were pre-tax or post-tax by cross-referencing multiple documents. There are tax experts who review the AI's findings before you get your results. I did have some questions afterward and was able to chat with someone who explained everything clearly. They don't just give you a yes/no answer - they provide documentation explaining why certain income is or isn't taxable based on tax code and your specific situation.

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Amara Okafor

•8M

Just wanted to follow up about my experience with taxr.ai. After seeing the comment here, I decided to give it a shot with my own PFML situation. I was surprised by how detailed their analysis was. They confirmed that in my case, the premiums had actually been paid pre-tax (which I didn't realize), which meant the benefits were rightfully taxable. But they also found that the IRS had calculated the tax incorrectly and was charging me about $1,200 more than I should owe. I wouldn't have caught this on my own. They provided documentation explaining exactly why the calculation was wrong, which I'm using to respond to the IRS. Definitely worth checking out if you're in a similar situation.

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Giovanni Colombo

•8M

If you're trying to reach the IRS to discuss this notice, good luck getting through. I spent WEEKS trying to talk to someone about a similar issue last tax season. The only thing that finally worked was using Claimyr (https://claimyr.com). They have this system that basically waits on hold with the IRS for you and calls you when an actual agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was super skeptical at first, but after wasting hours on hold myself, I gave it a shot. Ended up talking to an IRS agent within a couple hours instead of days of trying. The agent was able to look at my case and explain exactly what documentation I needed to submit to contest the determination. Saved me so much frustration.

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Giovanni Colombo

•8M

It doesn't skip the line - they just handle the waiting for you. The way it works is their system calls the IRS and navigates through all those annoying menu prompts, then stays on hold so you don't have to. When an actual human IRS agent picks up, you get a call on your phone connecting you directly to that agent. When the agent comes on the line, you're the one talking to them and providing your information. You just avoid all the hours of waiting on hold and repeatedly calling back when you get disconnected. You're still talking to the same IRS agents and going through the same verification process.

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StarStrider

•8M

I need to publicly eat my words about Claimyr. After posting that skeptical comment, I decided to try it anyway because I was desperate to resolve my tax issue. The service actually works exactly as described. I got connected to an IRS agent in about 70 minutes (after spending weeks trying on my own with no success). The agent was able to review my PFML benefits tax situation. Turns out in my case, I had documentation from my employer showing the premiums were paid post-tax, which means the benefits should have been tax-free. The agent put a hold on the collection and I'm submitting documentation to have the assessment reviewed. Would never have made progress without actually talking to someone at the IRS.

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Dylan Campbell

•8M

One thing nobody has mentioned - you should check if your state taxes PFML benefits differently than the federal government. In my state, they're not taxable at the state level even if they're taxable federally. Might save you some money on state taxes at least. Also, even if you do end up owing, you can request a payment plan from the IRS. They're generally pretty reasonable about setting up monthly payments if you can't pay the full amount at once. Just make sure you respond to the notice by the deadline even if just to request more time.

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Dylan Campbell

•8M

There's usually an underpayment penalty plus interest that accrues from the original due date of the return. However, you might qualify for penalty abatement if this is your first time having an issue with the IRS and you have a clean compliance history for the previous 3 years. The IRS calls this "First Time Abatement" and it's relatively easy to get if you qualify. You'd still owe the tax and interest, but they can remove the penalties. You have to specifically request this though - they won't automatically give it to you.

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Ava Martinez

•8M

I successfully contested mine. The key was proving the premiums were paid post-tax. I submitted a letter from my employer's HR department confirming the PFML premiums were deducted after taxes, copies of my paystubs showing the deductions, and my W-2 showing the full wages were reported (indicating no pre-tax deductions for PFML). I also included the relevant IRS guidance on taxability of disability benefits based on premium payment method. It took about 8 weeks, but they reversed the determination.

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