Colorado FAMLI Benefits and Federal Taxation - HR ALERTS

Colorado FAMLI Benefits and Federal Taxation

Effective: January 1, 2025

We want to make you aware of an important update regarding the tax treatment of benefits paid under Colorado’s Family and Medical Leave Insurance (FAMLI) program.

Effective January 1, 2025, FAMLI benefits are not subject to Colorado state income tax, but may be subject to federal income tax. According to recent IRS guidance (Revenue Ruling 2025-04), state family leave programs such as FAMLI are treated similarly to unemployment compensation, which is federally taxable.

Key Points to Know:

• FAMLI will issue a Form 1099-G to claimants who received FAMLI benefit payments.

• The benefits paid will be reported in Box 1 of the 1099-G, labeled as “unemployment compensation.”

• Claimants have the option to elect 10% federal tax withholding from their FAMLI benefit payments.

• Claimants who do not elect withholding may still owe federal income tax when they file their annual tax return.

Important:

Action is only required if an employee is actively receiving FAMLI benefits.

If an employee has a current or upcoming FAMLI claim, they will see a new prompt asking whether they wish to authorize 10% federal tax withholding. Employees who are not using FAMLI benefits do not need to take any action and there is not any employer action required.

---

Get day-to-day updates on Colorado FAMLI Benefits and Federal Taxation visit the Vida HR Knowledge Center (Vida HR Clients Exclusive).