r/tax • u/4mysquirrel • 1d ago

FAMLI Tax Issues - please help

Received FAMLI in CO back in 2024. Back then it was new, the state said it was NOT taxable but they didn’t know if federal taxes would be owed. In 2025 I believe they implemented withholding of 10% but they still haven’t ruled on how this all works. Anyways now i get a letter from the irs saying i owe $3k because of not reporting nor withholding for FAMLi. (I never received a 1099, and I was dealing with mental health stuff so I believed that because there was no tax documents on the Colorado government website that I didn’t have to do anything). The earned income and the additional child tax credit were also overstated I’m guessing because of this. Can anyone point me in the right direction?

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u/redblue_pill 23h ago

https://famli.colorado.gov/employers/irs-tax-guidance

https://famli.colorado.gov/employers/irs-tax-guidance/irs-tax-guidance-for-employers

In early 2025, IRS said that it counts for federal tax purposes, that 2025 is a transition period, and that in 2026 employers would need to do FICA and federal tax withholding for 2026 FAMLI payments. And in early 2026, the transition period is extended through 2026 and fed withholding starts in 2027 payments.

None of which helps OP's current situation.

https://taxnews.ey.com/news/2025-0297-irs-releases-guidance-on-tax-treatment-of-state-paid-family-and-medical-leave-contributions-and-benefits

https://www.9news.com/article/money/consumer/steve-on-your-side/irs-guidance-famli-benefits-federal-taxes/73-ffef835b-557f-4b65-96d8-f4b2ec1d93b3

Anyways now i get a letter from the irs saying i owe $3k because of not reporting nor withholding for FAMLi.

OP could probably apply for relief for penalties and interest, because the official guidance from fed and state was unclear at the time (and IRS is only just getting around to it). Might be worth talking a Colorado-licensed CPA for jurisdiction specific information.

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u/OldBrewser 1d ago

Back in 2024, CO stated that they were unsure if FAMLI payouts would be taxable at the federal level. Since then they have stated that the “feds have ruled” that FAMLi is taxable at the federal-level. I say “feds have ruled” because I don’t remember how that ruling came about, whether it was a tax court decision or what.

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u/4mysquirrel 1d ago

Omg. Thats so terrible my EITC calc and the child credit changed so I’m so screwed 😱