Washington employers already budgeting for the state’s Paid Family & Medical Leave (PFML) program now have a new wrinkle to track: starting in 2027, the way premium contributions are split between the medical and family leave portions of the program is changing — not because leave benefits are changing, but to keep the IRS from taxing part of the program as if it were Social Security.
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What happened
Governor Bob Ferguson signed Second Substitute House Bill 2345 on March 11, 2026, according to Washington’s Employment Security Department. The law responds directly to 2025 IRS guidance on state-run paid leave programs, which would have made certain medical leave payments subject to federal employment taxes — the same category as Social Security and Medicare taxes.
To avoid that outcome, the bill shifts employer contributions through what ESD describes as “a technical accounting adjustment” — moving money from the program’s medical leave premium bucket to its family leave bucket. Family leave contributions aren’t subject to federal employment taxes; medical leave contributions are. Total premium contributions for both workers and employers stay the same — this is a reclassification, not a rate hike.
Without the fix, ESD estimates the program would have faced federal tax liabilities of up to $30 million annually, money that would have either been drained from the Paid Leave trust fund or passed on to employers.
The new premium split takes effect in 2027, not this year — Washington’s 2026 premium rate remains 1.13%, unchanged by this law. ESD is expected to announce the 2027 premium calculations and split by mid-November 2026.
Why it matters
Washington’s PFML program is already funded through mandatory premiums that most employers withhold from paychecks and remit alongside their own contribution. A change to how those dollars are categorized — even without a rate change — affects how employers’ payroll systems and remittance calculations are structured behind the scenes. Get the reclassification wrong in payroll setup, and it’s an easy place for reconciliation errors to creep in.
What this means for Washington employers
Don’t expect a 2027 premium-rate announcement to look like previous years’ announcements — even if the total percentage employers and employees pay doesn’t move much, the underlying medical-versus-family split driving that number will. Flag this now with whoever runs your payroll (in-house or through a provider) so the 2027 update doesn’t get misapplied when ESD publishes the new numbers this November. If you self-administer PFML calculations rather than relying on a payroll platform to handle it automatically, this is worth a calendar reminder for mid-November.
“[The law] swaps employer contributions through a technical accounting adjustment from the program’s medical leave premiums to the family leave portions.” — Washington Employment Security Department, 2026
The bottom line
Nothing about Washington PFML benefits is changing here — but the accounting plumbing behind employer contributions is, and it’s driven by an IRS tax-classification issue most business owners never see coming. Mark mid-November on the calendar for the 2027 premium announcement, and make sure your payroll setup reflects the new split when it lands.
