December 6, 2023
Colorado announces new definition of taxable wages for paid family and medical leave insurance
The Colorado Department of Labor and Employment (Department) announced that, effective January 1, 2024, a new definition of taxable wages will apply for paid family and medical leave insurance (PFML) purposes.
CRS Section 8-13.3-501 et seq., implementing the November 3, 2020 ballot initiative 283, states that from January 1, 2023 through December 31, 2024, the premium amount is 0.9% of "wages" per employee. The term "wages" is not defined.
For PFML purposes, beginning in 2024, the Department is replacing the term "wages" with "gross wages," defined as shown below.
Colorado definition of taxable wages for paid family and medical leave insurance
Colorado's PFML taxable wages differ from Colorado unemployment insurance wages
Although Colorado's PFML and unemployment insurance programs are both administered by the Department, the definition of taxable wages are not the same.
A sample comparison is shown below. (Colorado unemployment insurance: Type of Payments Considered Wages.)
Wage definition: Colorado PFML vs. Colorado unemployment insurance
*While not expressly stated in Colorado's PFML wage definition, it appears that employee pretax contributions under an IRC Section 125 cafeteria plan and transit/parking benefits under IRC Section 132 do not reduce taxable wages for PFML purposes, nor do employee pretax contributions to qualified retirement plans.
Wages subject to Colorado income tax and withholding
It is important to note that Colorado's wage definition for PFML and unemployment insurance also does not conform to the definition of wages for Colorado income tax and withholding purposes. Wages for Colorado income tax and withholding purposes conforms to the Internal Revenue Code. (Colorado Withholding Tax Guide.)
Ernst & Young LLP insights
Colorado employers will need to carefully review their payroll system tax configurations for 2024 to confirm that compensation and pretax deduction codes are correctly included and excluded when determining the wages subject to Colorado PFML.
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor