Are CT Paid Leave Contributions Tax Deductible?
Clarify the tax rules for Connecticut Paid Leave. Understand the federal and state tax impact of contributions and benefits.
The Connecticut Paid Leave (CTPL) program provides income replacement for eligible workers needing time away from work for qualifying reasons. Individuals participating in this program should understand the tax implications of their contributions and any benefits they receive. Understanding these tax rules is important for financial planning and tax filing.
Understanding CT Paid Leave Program Contributions
The Connecticut Paid Leave program is funded through employee payroll deductions. Employers are responsible for deducting these contributions from their employees’ wages and remitting them to the CT Paid Leave Authority.
Employees in Connecticut are required to contribute; self-employed individuals can voluntarily participate. The contribution rate is 0.5% of wages. This deduction applies to wages up to the Social Security wage contribution cap ($168,600 for 2024, $176,100 for 2025). Contributions are taken from gross wages and are “after-tax,” meaning they do not reduce taxable income for federal or state purposes at the time of deduction.
Deductibility of CT Paid Leave Contributions
For federal income tax purposes, employee contributions to state paid family and medical leave programs are categorized by the IRS as state income taxes. This classification allows contributions to be potentially deductible on federal income tax returns for taxpayers who itemize. However, this deductibility is subject to the federal State and Local Tax (SALT) deduction cap, which limits the total deduction for state and local taxes to $10,000 per household. Many taxpayers find taking the standard deduction is more advantageous than itemizing, negating any benefit from deducting these contributions.
CT Paid Leave contributions are not deductible on Connecticut state income tax returns. This is consistent with how state income taxes treat other state tax payments. As “after-tax” contributions, they are not treated like pre-tax deductions such as 401(k) contributions, meaning employees cannot reduce their Connecticut taxable wages by these contributions.
Taxation of CT Paid Leave Benefits
The taxation of benefits received from the Connecticut Paid Leave program varies depending on the type of leave and the source of the contributions. For federal income tax purposes, family leave benefits are generally included in the recipient’s gross income. However, the IRS has provided guidance stating that medical leave benefits, specifically those attributable to mandatory employee contributions, are not considered taxable income to the employee. This distinction is important for individuals receiving benefits for their own serious health condition, including those related to pregnancy or childbirth.
States are typically required to report paid family and medical leave payments to recipients on Form 1099-G, which often lists these amounts under “Unemployment Compensation.” While taxes are not automatically withheld from these benefits, individuals can request voluntary federal income tax withholding when they apply for or receive payments. For Connecticut state income tax purposes, CT Paid Leave benefits are generally considered taxable income. Therefore, recipients should account for these benefits when filing their state tax returns.