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10.20.25
Minnesota Paid Family and Medical Leave: Premiums, Taxes and Employer Costs
By Cale Dunwoody, Vice President of Public Policy, FMWF Chamber
Learn how Minnesota Paid Family and Medical Leave affects employer premiums, taxes and compliance before the 2026 rollout.
As Minnesota’s Paid Family and Medical Leave (PFML) program moves closer to its Jan. 1, 2026, launch, one of the biggest questions for employers remains: How much will this cost my business?
The new program will be funded through shared payroll premiums between employers and employees. Understanding how these premiums work, how they affect taxes and what steps to take now will help your organization stay compliant and prepared.
How Premiums Work for Minnesota Paid Family and Medical Leave
Starting Jan. 1, 2026, payroll deductions will begin funding PFML, with employers submitting quarterly payments to the state. The first payment is due April 30, 2026.
Key Details:
- Total premium rate: 0.88% of employee wages, up to the Social Security wage cap ($176,100 in 2025).
- Employer share: At least 50% of the total premium (0.44% of wages).
- Employee share: Up to 50% of total premium (0.44% of wages).
- Flexibility: Employers can pay more than their 50% share, but cannot require employees to pay more than 50% of the premium.
PFML Small Employer Discount
To help smaller businesses adapt, PFML offers a reduced premium rate for eligible small employers. Instead of paying the standard 0.44% employer contribution, qualifying employers will pay at least half that amount (0.22%).
- Eligibility: Employers with 30 or fewer employees and average annual wages at or below 150% of the statewide average (approximately $107,000 in 2025).
- Employee Contribution: The reduced employer rate does not affect the employee share. The employee’s share would still be up to 0.44% of wages.
Annual Adjustments to PFML Premium Rates
After the first year in 2026, the premium rate will be reviewed and set annually by July 31 for the following year. The rate will be based on:
- How the program is performing financially
- Independent actuarial studies
- Budgeting practices that ensure the PFML fund remains stable and sustainable
According to current Minnesota law, the premium rate cannot exceed 1.1%.
Tax Treatment of PFML Premiums and Benefits
The IRS has issued initial guidance on how PFML contributions and payments will be handled:
- Premiums: Collected on post-tax wages. Employer required contributions can be deducted as an excise tax. If employers cover more than their required share, they can deduct this additional contribution as an ordinary and necessary business expense.
- W2: Employers should put the amount of the employee’s contribution and the amount of any employer pickup contribution in Box 14 of the W2 labeled as MNPFML.
- Family Leave Benefits: These benefits are not counted as wages. The Paid Leave department will issue employees who take Family Leave a 1099 at the end of the year.
- Medical Leave Benefits: These benefits are considered as wages (third-party sick pay); and are subject to Social Security and Medicare taxes.
- This amount will be 50% for most employers, and 33% for small employers.
- This amount should be reported as wages on a W2.
- The state will provide employers with the taxable amount of Medical Leave payments.
Employers will have access to a PFML portal once they have created their account to track benefit payments and meet payroll tax obligations in real time.
Planning Ahead for PFML
Employers should begin preparing now to minimize disruptions in 2026. Key steps include:
- Set up an Employer Account and an Administrator Account with the State of Minnesota.
- Notify employees of the upcoming benefit.
- Estimate total costs using the state’s online calculators.
- Update payroll systems to manage new deductions starting Jan. 1, 2026.
- Update workplace policies.
Key Takeaway: Understanding how costs are shared, how tax rules apply and how payroll systems must adapt is critical for compliance.
Minnesota Paid Leave Website:
Visit the Paid Leave website to:
- Review the three steps employers should take to be ready.
- Check out frequently asked questions for employers.
- Estimate premium payments using the online calculator.
- Set up your accounts for Paid Leave.
- Sign up to receive Paid Leave updates.
- Submit your questions.
To reach the Contact Center by phone, call 651-556-7777 or 844-556-0444 (toll-free). Paid Leave staff are available 9 a.m. to 4 p.m., Monday through Friday, except state holidays.
Next up in this blog series, we’ll share a compliance checklist so you know exactly what steps to take before Jan. 1, 2026.
If you missed our first article, read Minnesota Paid Family and Medical Leave: What Employers Need to Know
Disclaimer: Please consult an HR professional or employment attorney to ensure compliance with Minnesota Paid Family and Medical Leave requirements.
Acknowledgment: All information in this article was sourced directly from the Minnesota Department of Employment and Economic Development (DEED) to ensure accuracy and clarity for employers preparing for Minnesota Paid Family and Medical Leave compliance.
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