Oregon agency seeks rulemaking authority to shield paid‑leave benefits from IRS payroll-tax ruling

The Oregon Employment Department (OED) told the Senate Committee on Labor and Business that Senate Bill 1520 would give the agency narrow rulemaking authority to adopt an accounting system that separates employer and employee contributions to the state's paid-leave trust to comply with an IRS ruling.

Andrew Stolfi, OED director, said the IRS ruled that employer‑funded portions of medical leave benefits could be considered wages subject to payroll taxes, which would impose roughly $20,000,000 per year in payroll-tax liabilities on states with similar programs and cost an estimated $5,600,000 in programming work to implement. Stolfi said the IRS granted an extension until January 2027 for states to respond.

Under SB 1520, OED would be authorized to label each dollar in the fund by source and ensure that medical leave benefits are paid only from employee‑labeled funds, while family and safe-leave benefits could still be paid from both employer and employee funds. "When paid leave pays benefits, the program would only use employee contributions to pay medical leave benefits," Stolfi said.

Stolfi said employees supply about 60% of total revenue while medical leave accounts for about 54% of benefit costs; the trust fund had about eight months of anticipated expenditures at the 2025 review and projected to minimally decrease to about 7.9 months in 2026. He said any accounting and programming changes required if SB 1520 passes would be absorbed within OED’s current budget and that OED would work with the Paid Leave Advisory Committee on rulemaking.