TurboTax Incorrectly calculating PFL for CA

[pcpatter]

Federal is all good. I have input the W2 from 3rd party insurance for pregnancy disability leave and the payments from the state on 1099-G for disability/PFL. When I move on to my state return, it puts the 1099-G amounts as unemployment but then turbotax puts an amount equal to 100% of my W2 salary for PFL, which I assume is incorrect. I corrected this amount to the amount reported on the W2 from the 3rd party insurance only.

My question is: how did the turbotax software come up with this hugely incorrect number for this line in the first place? It makes a $9000 difference on the refund amount I would be receiving so want to make 100% sure that my correcting the number they generated from my W2 salary down to $250 is correct. I was only on leave for 14 weeks so 100% of my salary being in that box didn't make sense but want to make sure I have corrected it properly.

[BillM223]

Please clarify this for me. Did you have two W-2s, one for your regular employment, and one from the 3rd party insurance company? Otherwise, I don't understand this: "then turbotax (sic) puts an amount equal to 100% of my W2 salary for PFL, "

[pcpatter]

So my box 16 (state income) on the w2 from my employers has amount X. This amount X was autofilled on my state return as being all PFL (which it wasnt). Im not sure why this number was autofilled unless turbotax just assume anyone with disability/PFL payments was out all year. I have a seperate W2 for $250 from anthem insurance. So this was not reported on my w2 from work but was a separate payment my insurance paid to me directly. I hope that makes sense.

[MaryK4]

Can you clarify if the Third Party Sick Pay is indicated on your W2?  There is a place where you can indicate the PFL- it should be one of the followup questions on your W2 in the federal section.  @pcpatter 

[pcpatter]

It is on my W2 from anthem insurance directly. It is not on the w2 from my employer. 

[MaryK4]

You will want to go the W2 entry and make sure you indicate Paid Family Leave (see below).  Next, go to the California state tax return section and you should see the screen below where you can make the adjustment.  @pcpatter   

[pcpatter]

Yes ive done that. I guess im just wondering if i did something wrong or if turbotax just incorrectly assumes 100% of a w2 is pfl if that box is checked. If i hadnt caught this incorrect calculation my return would be grossly off

[JoseRivera01]

I'm seeing the same thing when typing in the state information.  And when I adjust it to 0 and check the box, I lose about $2000???  Like why, I don't get it.  For $2000 I might take my tax stuff to a Tax Professional.

[MonikaK1]

This is a common issue for California users. It's important that you only exclude from California income the amount of Paid Family Leave that was paid to you other than by an employer, and that you don't take an extra deduction for PFL paid by the California EDD that was already excluded from income. 

In California, Paid Family Leave (“PFL”) provides benefit payments to people who need to take time off work for certain family issues.  PFL paid by the California Employment Development Department (EDD) is reported on Form 1099-G, while PFL paid through a Voluntary Plan for Disability Insurance (“VPDI”) is reported on a W-2, either through the employer or a third-party insurer.  

Paid Family Leave (PFL) income is taxable on your federal return, but not taxable on your California State return if either of the following situations apply:

• It’s paid by the state's Employment Development Department (EDD) and appears on a 1099-G form
• It’s paid by an insurance company under a Voluntary Plan for Disability Insurance (VPDI) and is reported on a W-2 from the insurance company

If your PFL is reported on a W-2, you must identify the amount (if any) that was paid by an insurance company, and not your employer.

On the “Do any of these uncommon situations apply to this W-2?” screen in the federal interview, if you mark the W-2 as containing PFL, then TurboTax will display a PFL adjustment screen in the California interview, showing the total wages from the W-2 marked by the user as containing PFL, and asks the user to review and adjust the amount as needed. 

The screen also instructs, “Don’t include PFL income reported on a 1099-G. This will automatically be deducted from your California income.”

Whatever amount is input on the PFL adjustment screen in the California interview will be subtracted from your wages on your California return. 

If none of the amount was paid by an insurance company, and all of it was paid by your employer, you must enter $0 in the wages box in the PFL adjustment screen in the California interview, because any amount reported by your employer in box 16 of a W-2 is considered compensation for services or taxable fringe benefits in California.

The California Franchise Tax Board regularly audit returns with this issue and adds back to California income any amount incorrectly identified as PFL that was paid by an employer as regular wages or was excluded twice by deducting amounts already excluded on Form 1099-G.

[Jsouza7878]

Hello,

I am having the same issue as well. I have read above and I am still confused. On this part of my state taxes it shows the top part of paid family leave and has my total income from box 16 of my W2 and the unemployment income exclusion shows the amount actually paid from PFL. Is the top box labeled Paid Family Leave  supposed to show my wages from box 16?

[BillM223]

California defines Paid Family Leave as those dollars paid by the California EDD  (Employment Development Department) on a 1099-G, or from an insurance company engaged by your employer on a W-2 from the insurance company NOT your employer. PFL on your regular W-2 from your employer is almost certainly not tax-free PFL in the eyes of the CA Franchise Tax Board, no matter what your HR department says.

Over the years, I have found that employers and HR departments have a very poor understanding of what tax-free PFL is.

To answer your question, the top line "Paid Family Leave" is almost certainly not box 16 on your W-2, if by "W-2" you mean the document from your employer.

Please review this write and pay attention to the screen shots:

Paid Family Leave (PFL) is income that is taxable on the federal return but is non-taxable on the California state return if it

• is paid by the state's Employment Development Department (EDD) and appears on a 1099-G form –OR–
• is paid by an insurance company under a Voluntary Plan for Disability Insurance (VPDI) and reported on a W-2 from the insurance company.

To repeat: PFL is not included in your employer's regular W-2 but on a separate W-2 from the insurer.

Amounts called “PFL” that are paid by your employer and which appear on the W-2 from your employer (see last image below) are taxable both on the federal level and by the state of California.

When you mark a W-2 in TurboTax as being PFL, a screen about PFL appears in the California section of the interview.

**W-2 Interview**

**California Interview**

The amount of wages on the W-2 marked as PFL is displayed so you don't have to look it up, but you are asked enter the amount (if any) that was paid by an insurance company, and not your employer.

If none of the amount was paid by an insurance company but all of it was paid by your employer, then you must enter zero (0) in the wages box on this screen, because any amount reported by your employer in box 16 of a W-2 is considered by California as compensation for services or taxable fringe benefits.

Note that compensation for short-term disability, vacation days, sick leave, and other employer benefits are not considered to be tax-free PFL.

If so "so-called" Paid Family Leave was actually paid by the employer on the W-2, then do not check Paid Family Leave on the screen after you enter the W-2.

[basheer42]

I did not get paid by insurance company and when I add 0 to that field, my CA refund goes down. That is the part where we are confused. 

[BillM223]

"That field" is the amount of PFL. When you enter this amount, it reduces your CA taxable income. When you enter zero here, this means that you had no PFL, so your taxable income increases, so of course your CA refund "goes down".

However, you should not make entries based on whether or not your refund goes up or down, but based on whether or not your entries are correct.

So please read my previous post closely and pay attention to the screen shots. Come back if you have additional questions.

[ohshooot]

Thanks @BillM223 

I think this is clear, basically no deduction if you don't receive a separate W-2 from the insurer or have EDD.

Just one more check in hopes of paying less taxes...

1) If my W-2 from my employer has an amount marked  (VPDI) in Box 14, can i type that into the "PFL" box that decreases my CA tax (increases refund) even if i don't have a W-2 from the insurer?

2) The amount marked "PFL" in box 14 of my employer W-2 is the exact difference between box 1 and box 16, so does that mean that the california portion of my taxes is calculated from the box 16 number, meaning that PFL amount has already automatically been deducted from the federal  income tax basis to create the CA state income tax basis, does this sound right?

[RobertB4444]

When you're entering your W2 into TurboTax most of the entries in box 14 are only informational.  These two are two of the ones that are not so enter the amounts into box 14 and then select California PFL and VPDI from the pulldown menu.

@ohshooot