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Lev
Lev, Tax Advisor
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Just got a letter from the California franchise tax board stating

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Just got a letter from the California franchise tax board stating that I own an additional $3K for tax year 2009. I went back and reviewed my return and the revision they are making to my taxable income has to do with a deduction around "paid family leave."

When I was completing my return using turbo tax, it asked if any of my income had been earned during a paid family leave -- I had been on maternity leave that year, and so I entered the appropriate amount and it deducted it. Now that I am reading the line item on the actual return, it says, "paid family leave insurance benefits," which is slightly different from how it was asked on turbo tax (i believe).

Can you please explain the rules around the deduction? Trying to understand if my maternity leave would be captured under this deduction.

LEV :

Hi and welcome to Just Answer!
Unfortunately - benefits received under the new California Paid Family Leave insurance program are taxable for federal income tax purposes, but should not be taxable for CA state income tax purposes.
The EDD should report these benefits on 1099G form.
Please see for reference - http://www.arlengroup.com/facts/fact_fmla.pdf
See also explanation on the EDD site - http://www.edd.ca.gov/disability/FAQ_PFL_Benefits.htm#TaxPurposes
How are Paid Family Leave insurance benefit payments treated for tax purposes?


For state tax purposes, Paid Family Leave benefit payments are not taxable by California pursuant to Revenue and Taxation Code section 17083.
I might suggest to contact CA FTB and provide that information. It seems as they made a mistake.

LEV :

I also found direct reference from CA FTB - https://www.ftb.ca.gov/aboutFTB/press/archive/2004/04_79.shtml


State Controller and Franchise Tax Board (FTB) Chair Steve Westly announced that benefits paid to employees participating in the Paid Family Leave program are not subject to California income tax.


"I'm delighted to tell Californians they can take time to be with their newborn children or care for their loved ones without worrying about getting stuck with a state tax bill," said Westly.


The new law (SB 1661 Kuehl, Ch. 2002) extends disability compensation to people who take time off work to care for a seriously ill child, spouse, parent, domestic partner, or to bond with a new baby or adopted child. Because the benefits paid are in the nature of unemployment compensation, California law considers it nontaxable income for state purposes. Anyone eligible starting July 1, 2004, can claim weekly benefits of up to $728 for a maximum of six weeks.

Customer:

Thank you for finding that information. That was helpful. there is one thing that I found unclear in the link. The earnings that are not taxable have to come from the state or are leave benefits paid by employers also eligible. Does the reference to "voluntary plan" in this sentence, " An estimated 13 million California workers covered by SDI or a similar Voluntary Plan are eligible for this benefit," imply that benefits paid by my employer also get the same benefit? I deducted much more that $728 per week for 6 weeks. it is unclear if that is referencing how much you can collect from SDI or that is how much you can deduct. Any thoughts on this?

LEV :

Above are for California Paid Family Leave insurance program paid out from SDI coverage.
If you have separate insurance program - benefits are taxable or not based on who paid premiums.
You must include as taxable income any amount you receive through an insurance plan that is paid for by your employer. If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income.
Thus - if you pay the entire cost of that insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return.
However - if premiums are paid by your employer - all benefits are taxable.

Customer:

Thanks again for the information. I want to be sure I am understanding this correctly...

Customer:

if I received payment from the state it is not taxable.

Customer:

If I received payment from an insurance company where I paid the premiums, then it is not

Customer:

If I received payment from my employer directly, then it is taxable.

Customer:

Doesn't that go against the spirit of the letter provided in the link?

Customer:

which is you shouldn't have to pay taxes while you are on leave?

Customer:

sorry, you clearly can't opine on their intention of the law

Customer:

honestly, not sure who paid me...

Customer:

why does it coming from insurance or not affect it?

LEV :

Your understanding is correct.
The letter above is related to the California Paid Family Leave insurance program paid by EDD - these are payments made by the state.
It is not about any insurance payments.
In you situation - you need to be clear - who made these payments.

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