06 December 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. 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 Compensation type | Included in gross wages | Excluded from gross wages | Salary | Yes | | Hourly wage | Yes | | Overtime | Yes | | Tips | Yes | | Bonuses | Yes | | Commissions | Yes | | Piece rate | Yes | | Employer-provided paid leave (paid time off, sick, vacation, etc.) | Yes | | Disability benefits paid by the employer and not a third party | Yes | | Parental leave paid by a third party and not the employer | Yes | | The value of lodging or meals used as a credit toward the minimum wage | Yes | | Severance payments | | Yes | Employer contributions to, or payouts from, a deferred compensation plan | | Yes | Profit sharing | | Yes | Pensions or retirement plan payments (but not employee contributions) | | Yes | Expense reimbursements (mileage, travel, moving, per diems, etc.) | | Yes | Non-monetary payments (except lodging or meals to the extent they are used as a credit toward the minimum wage) | | Yes |
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. Wage definition: Colorado PFML vs. Colorado unemployment insurance Compensation type | Colorado unemployment insurance | Colorado PFML | Pretax contributions to qualified retirement plans | Not exempt | Not exempt* | Payments for moving expenses if deduction is allowed under IRC Section 217 | Exempt | Exempt without regard to IRC Section 217 | Amounts paid or incurred for a dependent care plan under IRC Section 129 | Exempt | Not exempt | Benefits under an educational assistance program under IRC Section 127 | Exempt | Not exempt | IRC Section 125 pretax contributions for qualified benefits | Exempt | Not exempt | IRC Section 132 pretax contributions for transit and parking benefits | Not exempt | Not exempt* | All employer contributions to Colorado PFML premiums, whether paid by the employer on behalf of the employee or the required employer share | Exempt | Not exempt | Severance pay | Not exempt | Exempt | Disability payments paid after first six months of disability leave | Exempt | All disability payments paid by a third party are exempt | Parental leave paid by a third party | Not exempt | Exempt |
*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. Contact Information
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Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor Document ID: 2023-2005 | 
