Washington Updates Paid Family and Medical Leave Premium Split to Align with Federal Tax Guidance

Why It Matters

The reallocation eliminates additional federal employment taxes on employer‑funded family leave, lowering cost pressures for Washington businesses and ensuring the state program stays fiscally compliant with federal rules.

Key Takeaways

• Employers can fully deduct employee medical premium share
• Family premium deduction capped at family premium plus 45% medical
• Small firms (<50) stay exempt from employer PFML contributions
• Change aligns state PFML with IRS tax guidance
• Adjustments effective Jan 1 after October premium recalculation

Pulse Analysis

Washington’s Paid Family and Medical Leave (PFML) program has become a benchmark for state‑run benefit schemes, offering workers up to 12 weeks of wage‑replacement leave for family caregiving or personal medical needs. Since its inception, the program has been funded through a joint premium paid by employers and employees, with the split designed to balance coverage costs and tax treatment. Recent IRS guidance clarified that employer contributions earmarked for family leave are exempt from federal employment taxes, while medical‑leave contributions remain taxable, prompting states to revisit their allocation formulas to avoid unintended tax liabilities.

House Bill 2345, signed by Governor Bob Ferguson on March 11, 2025, directly addresses the IRS clarification. The legislation leaves the total PFML premium unchanged but reshapes the internal distribution: employers may now deduct the full employee share of the medical‑leave premium, and they can deduct family‑leave contributions up to the sum of the family premium plus 45 % of the medical premium, less the full medical amount. Small employers with fewer than 50 workers continue to be exempt from the employer portion, preserving the program’s affordability for the state’s most vulnerable businesses.

The new split will be reflected in the annual rate calculation that the Employment Security Department publishes each October, with the revised figures taking effect on January 1 of the following year. Payroll systems will need to be updated to allocate the employer‑paid portion correctly, and HR teams should monitor the Department’s forthcoming implementation guidance. Beyond compliance, the change signals a broader trend of states aligning benefit financing with federal tax policy, offering a template for other jurisdictions seeking to minimize employer tax exposure while maintaining robust family‑medical leave coverage.