Washington state’s paid family and medical leave program is facing challenges on multiple fronts, from solvency issues to unexpected tax liabilities for workers and employers. 

First instituted in 2019 at a premium rate of 0.4%, the paid family and medical leave (PFML) premium rate is projected to increase to 1.13% in 2026, according to a release from the Washington Research Council. 

Currently, employers contribute 55% of medical leave premiums while employees pay 45%. Family leave premiums are funded entirely by employees. 

However, the program’s actuary shared with state officials on Sept. 24 that its financial outlook has worsened. 

The program is now projected to reach the statutory maximum premium rate of 1.2% in 2027 and remain there indefinitely. According to the presentation, beginning in 2028, that rate will not be adequate to cover expenditures. 

The state’s PFML account is now expected to end the 2026 fiscal year with a $26 million deficit and have a $353 million deficit at the end of 2029. Given the ongoing financial problems in the program, the Legislature changed its rate structure in 2023 and appropriated $200 million from the general fund to the account. 

Adding to those woes, earlier this year the IRS released guidance indicating it will impose straightforward tax liability on family leave benefits even with employer premium contributions. Tax treatment of medical leave benefits face more complexity, creating additional challenges. 

“The ruling carries major implications for Washington, Oregon and Colorado, where employer premium contributions are required,” according to a statement from the Washington Retail Association. “For the first time, both employees and employers face federal tax liability in ways not previously contemplated. 

To minimize tax exposure and burdens on all parties, the PFML program is reviewing a proposal to shift employer contributions from medical leave to family leave that would minimize tax exposure and burdens, according to the association. However, there are also concerns retroactive tax liability given the Jan. 1, 2026, effective date for the new IRS guidance and whether the Legislature can act in time during the 2026 session.