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Tax Implications of the Family Leave Pool

FPP A.049

Tax Implications

Based on a review of Internal Revenue Service (IRS) Revenue Ruling 90-29 and IRS Private Letter Ruling 152644-06_WLI01, this new leave pool may not qualify as a bona fide employer-sponsored leave sharing plan for medical emergencies afforded special tax treatment by the IRS, which exempts donations of leave to the leave pool from the general assignment of income rule. Therefore, there may be tax consequences for employees who choose to donate leave to this pool.

The Comptroller’s office cannot provide legal guidance or determine compliance with IRS guidelines based on each agency’s implementation of the family leave pool. Each agency should carefully review the statutory provisions as well as the IRS guidelines to determine the appropriate tax treatment of leave donated to and taken after being awarded from the agency’s family leave pool.

Agencies that determine an employee incurs a tax liability by donating leave to its family leave pool must manually adjust the donor employee’s taxable wage record to ensure proper tax withholding and quarterly and annual tax reporting.

To aid in the manual adjustment of the employee’s tax record, the Comptroller’s office has created a new taxable non-cash earnings code. This code adjusts the employee’s taxable wage base for the pay period in which it is recorded but does not adjust the employee’s actual gross pay.

Additional Resources

See CAPPS Family Leave Pool Tax Instructions or HUEU1 – Other One-Time Special Pays and Overrides in the USPS Process Guide for more information about entering this tax adjustment.