A Deep Dive into the Details and Benefits of Minnesota’s PFML Program
As we near the halfway point of 2026, let’s take a deep dive into one of Minnesota’s newest state programs, which is the Paid Family and Medical Leave (PFML) program that began in January 2026. For regular employers, the total premium rate is 0.88% of covered wages, generally split evenly between the employer and employee at 0.44% each. Certain qualifying small employers are subject to a reduced total premium rate of 0.66%.
For payroll tax purposes, the tax result depends on who pays the premium. Minnesota Revenue guidance provides that the required employer contribution is not taxable to employees and does not increase Form W-2 wages, while the employee’s share is a post-tax payroll deduction. However, if an employer chooses to pay, or “pick up,” some or all of the employee’s required share, that additional amount is treated as taxable wages to the employee and should be included on Form W-2.
When can premiums become taxable wages? The key “tipping point” is whether the employer pays more than its required share (i.e., whether the employer “picks up” the employee share). Required employer premiums remain non-taxable to employees. But any employer-paid amount that satisfies the employee’s required contribution is treated as additional taxable wages to the employee.
Benefits paid under the program also have important tax consequences, and the tax treatment differs significantly between family and medical leave. For federal purposes, family leave benefits are taxable income, but they are not treated as wages for federal employment tax purposes and generally will be reported on Form 1099 rather than Form W-2. In other words, while Minnesota treats Paid Leave benefits as taxable for state income tax under the statute, the federal employment tax treatment differs between family leave and medical leave.
Medical leave benefits are treated differently because the taxability depends on how the benefits are “sourced” between employer-funded and employee-funded premiums. To the extent medical leave benefits are attributable to employer contributions, they are treated as taxable wages and characterized as third-party sick pay under the federal framework. Minnesota guidance provides a practical percentage approach that links directly back to the premium split: For regular employers (generally 0.88% total premium split 0.44% employer / 0.44% employee), 50% of medical leave benefits are treated as wages (reflecting the employer-paid share), and the remaining 50% (reflecting the employee-paid share) is excluded from federal gross income. For qualifying small employers subject to the reduced 0.66% total premium, Minnesota guidance states 33% of medical leave benefits are treated as wages (employer-attributable portion), while the remaining 67% (employee-attributable portion) is excluded from federal gross income.
Minnesota PFML can become taxable to employees in two main ways depending on employer funding: Required employer premiums generally do not increase employee taxable wages, but if an employer pays more than its required share by picking up the employee share, that employer-paid employee-share amount is taxable wages. With tax on benefits, for federal purposes, family leave benefits are taxable income but not wages (generally Form 1099), while medical leave benefits are taxable as wages only to the extent attributable to employer contributions—generally 50% of medical leave benefits treated as wages for regular employers and 33% for qualifying small employers under current Minnesota guidance.
Analyzing Other Key Changes from Minnesota’s Tax Bill
Minnesota’s recently enacted tax bill (H.F. 2438) includes several important updates that will affect business tax planning beginning with the 2025 tax year and beyond. We’ve highlighted one of the most highly anticipated decisions, the extension of Minnesota’s Pass Through Entity Tax (PTET) through December 31, 2027, but let’s analyze the other updates from the tax bill as well. Another significant change is the state’s updated conformity to federal tax law, generally aligning Minnesota’s tax code with federal provisions in effect as of May 1, 2026. This change reduces some of the complexity that arose from differences between Minnesota and federal law following recent federal tax legislation. Notably, Minnesota now aligns more closely with federal rules governing Section 179 expensing, business interest expense limitations under Section 163(j), certain depreciation provisions, and portions of the federal research and development (R&D) expense rules.
Despite this increased conformity, important differences remain—particularly regarding the treatment of R&D expenditures. Pass-through entities will generally conform to the federal rules, allowing immediate expensing of qualifying R&D costs. However, C-Corporations are subject to different Minnesota rules, requiring 80% of current-year R&D deductions to be added back and amortized over four years. As a result, entity choice may have a greater impact on Minnesota tax outcomes, especially for businesses with significant research and development activities. While the bill simplifies certain areas by bringing Minnesota closer to federal law, careful planning remains essential to navigate the remaining state-specific differences and maximize available tax benefits.
Tax Uncertainty Surrounds Market Winnings During the 2026 FIFA World Cup
As the 2026 FIFA World Cup brings millions of visitors to the United States, prediction markets such as Kalshi and Polymarket are expected to see increased activity from individuals wagering on match outcomes. However, the federal tax treatment of these transactions remains uncertain. The key issue is whether prediction market contracts will ultimately be treated as gambling wagers or as financial products. If classified as gambling, winnings earned by foreign visitors while in the United States would generally be considered U.S.-source income and could be subject to a 30% withholding tax and U.S. tax filing requirements. If treated as financial contracts, the gains may instead be sourced to the individual’s country of residence, potentially eliminating any U.S. tax obligation.
The classification also has significant implications for U.S. taxpayers. Beginning in 2026, recent federal legislation limits the deductibility of gambling losses to 90% of winnings, which could result in taxable income even when a taxpayer breaks even economically. By contrast, if prediction market contracts are treated as financial instruments, gains and losses may generally be netted against one another, avoiding this unfavorable outcome. Additional uncertainty exists regarding whether these contracts qualify for special tax treatment under Internal Revenue Code Section 1256, which applies to certain regulated futures contracts.
Despite growing participation in prediction markets, the IRS has not yet issued specific guidance addressing their tax treatment. Ongoing disputes among federal and state regulators over whether these contracts constitute gambling or financial products suggest that further administrative guidance or court decisions may ultimately be required.
Legislation Proposed to Tax Certain Loans to Ultra-Wealthy Taxpayers
A recently introduced Senate bill, the ROBINHOOD Act (S. 4662), would significantly alter the tax treatment of loans received by certain high-net-worth individuals. The legislation targets the widely discussed “buy, borrow, die” strategy, under which taxpayers borrow against appreciated assets rather than selling them and triggering capital gains tax. Under current law, loan proceeds generally are not taxable, allowing some wealthy individuals to access substantial liquidity while deferring recognition of investment gains.
If enacted, the bill would require certain taxpayers to recognize long-term capital gains when receiving a loan. The rules would generally apply to individuals with more than $100 million of adjusted gross income or $1 billion of assets for three consecutive years. The loan would be treated as a taxable realization event, with the taxpayer deemed to have sold appreciated assets equal to the loan amount. The resulting gain would be subject to long-term capital gains tax, currently reaching 23.8%, and could not be offset by capital losses. To prevent double taxation, taxpayers would be permitted to increase the basis of affected assets by the amount of gain previously recognized.
The proposal also includes anti-avoidance provisions covering long-term leases, existing loans, Trusts, Estates, Partnerships, and S-Corporations. Existing loans would generally be treated as newly issued loans beginning January 1, 2027, for purposes of the new rules. Although the legislation is aimed at a relatively small group of ultra-wealthy taxpayers, it reflects ongoing efforts in Congress to address perceived tax advantages associated with unrealized appreciation and wealth-transfer strategies. If enacted, the provisions would apply to tax years beginning after December 31, 2026.
