How do different states treat box 14 codes and employer-paid benefits for state withholding?
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Executive summary
States treat Box 14 entries and employer-paid benefits very differently: Box 14 is an employer-controlled “catch‑all” that often holds state disability, unemployment, or paid‑leave contributions that can affect state returns but usually not federal taxes (see IRS guidance and TurboTax/HR Block explainers) [1] [2] [3]. The IRS’s 2025 Revenue Ruling 2025‑4 changed federal treatment and reporting for state paid family and medical leave (PFML): it specifies when contributions or employer “pick‑ups” are taxable or reportable on the W‑2 and provides a 2025 transition window for withholding and reporting [4] [5].
1. Box 14: the miscellany box that states rely on
Box 14 is not standardized; employers can place a wide range of state‑specific withholdings and benefit codes there—state disability (CASDI, NYSDI), workforce or unemployment levies, paid‑leave contributions, union dues, or company‑specific labels—and states frequently expect taxpayers to use those entries when completing state returns [6] [7] [8]. Tax help sites and payroll FAQ pages repeatedly warn that Box 14 is informational: many items shown there don’t change federal taxable wages but can change state calculations or indicate amounts already withheld at the state level [8] [9] [10].
2. Federal baseline: what the IRS requires employers to report
IRS W‑2 instructions and Publication 15‑B set federal rules for boxes 1, 3, 5 and for specific box 12 codes; by contrast, Box 14 has no IRS‑mandated standardized codes and functions largely as an employer’s supplemental note on the W‑2 [1] [6]. For fringe benefits and many employer‑paid items, Publication 15‑B explains when amounts must be included in wages and subject to income, Social Security and Medicare withholding—these federal inclusion rules remain the primary baseline for how benefits are taxed independent of state labeling [11].
3. PFML changed the landscape in 2025 — federal clarity, state patchwork persists
The IRS issued Revenue Ruling 2025‑4 to clarify federal income and employment tax treatment of mandatory state PFML contributions and benefits; it draws distinctions among programs and scenarios (employee‑funded, employer‑funded, employer pick‑ups), requires certain employer reporting and W‑2 inclusion for contributions treated as wages, and gives a transition relief period through calendar year 2025 for implementation [4] [12] [13]. The ruling means an employer that pays an employee’s PFML premium may need to include that pickup in Boxes 1, 3 and 5 of the W‑2 in many cases, while benefits paid by state PFML programs are addressed separately and may or may not be taxable depending on how they were funded and reported [5] [14].
4. Where federal and state views diverge: examples and consequences
States differ: some, like New York, fund PFML largely through employee contributions and—per industry summaries—those benefits can be tax‑free from a federal withholding perspective when funded entirely by employees, but the IRS ruling still forces attention to how contributions and employer pickups are reported on the W‑2 [15] [16]. Separate state programs also create routine Box 14 entries—state disability insurance in California (CASDI), New Jersey Workforce Development taxes, local service taxes—that are informational for the federal return yet can be deductible or otherwise relevant on state returns [8] [7] [17].
5. Practical guidance for taxpayers and payroll teams
Taxpayers should read employer documentation and Box 14 legends before assuming items are irrelevant: many payroll sites and tax services advise that Box 14 often holds state‑mandated SDI/PFL, union dues, transit or other deductions that affect state filings or itemized deductions in narrow cases [9] [10] [18]. Employers must follow Publication 15‑B and the IRS ruling for PFML when deciding whether to include employer‑paid contributions in boxes 1, 3 and 5 and when to label entries in Box 14; states will still require their own reconciliations because the W‑2’s Box 14 descriptions are employer‑defined, not federally standardized [11] [4] [6].
6. Conflicting interpretations and lingering gaps
Industry analyses and law‑firm summaries interpret Revenue Ruling 2025‑4 differently across scenarios—some emphasize that employer pick‑ups become wages, others highlight transition relief for 2025—so payroll departments must track guidance closely for specific state programs [19] [20] [12]. Available sources do not mention a single, uniform state list of exactly how each state will treat every Box 14 code; instead, reporting practice remains a mix of federal rules from the IRS and state‑level interpretations or filing rules (not found in current reporting).
7. Bottom line and checklist
Box 14 will keep being a state‑sensitive, employer‑driven field that can matter a lot for state filings even when it’s irrelevant federally; since 2025 the IRS has clarified PFML reporting but left states to apply their own rules, so taxpayers should check employer Box 14 legends and payroll FAQs, confirm whether employer contributions were included in Boxes 1/3/5 per Publication 15‑B and RR 2025‑4, and consult state instructions when Box 14 lists SDI, PFML, or workforce/unemployment codes [8] [11] [4].