The Internal Revenue Service released guidance on the income and employment tax treatment of contributions and benefits offered under state paid family and medical leave programs, along with the reporting requirements. 

Rev. Rul. 2025-4 includes guidance for the District of Columbia and states that have mandatory paid family and medical leave programs and for employees working in and employers operating in those states. The guidance, which was released Wednesday,  comes in response to requests to clarify the federal tax treatment of state paid leave programs that help pay employees who can’t work due to non-occupational injuries to themselves or their family members, in addition to sickness and disabilities.

The document discusses multiple tax treatment scenarios for contributions to and benefits paid in certain situations under these programs, plus the related reporting requirements.

Employers can generally deduct the amount they contribute to mandatory paid family and medical leave programs as an excise tax payment. Similarly, an employee can deduct the amount they contribute as a payment of income tax, if the employee itemizes deductions, to the extent that the employee’s deduction for state income taxes does not exceed the state income tax deduction limitation.

An employee who receives state paid family leave payments needs to include those amounts in the employee’s gross income, the IRS noted. An employee who receives state paid medical leave payments must include the amount attributable to the employer portion of contributions in the employee’s gross income. This second amount also is subject both to the employer’s and employee’s shares of Social Security and Medicare taxes. The amount attributable to the employee’s portion of the contributions is excluded from the employee’s gross income, and this amount is not subject to Social Security or Medicare taxes.

The revenue ruling provides more guidance on other situations. In addition, it offers transition relief to the District of Columbia, states and employers from certain withholding, payment, and information reporting requirements for state paid medical leave benefits in 2025.

The guidance will affect the District of Columbia and states administering paid family and medical leave programs, employers and workers contributing to such programs, and those who receive payments from these programs.

The IRS is asking for comments on other situations and aspects of state paid family and medical leave programs that aren’t covered in this revenue ruling electronically via the Federal eRulemaking Portal at https://www.regulations.gov.  Commenters can type IRS-2025-0012 in the search field on the https://www.regulations.gov home page to find the revenue ruling and submit comments). Or they can send comments by mail to: Internal Revenue Service, CC:PA:LPD:PR (Revenue Ruling 2025-4), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Many accountants and financial professionals estimate corporate value using criteria related to property, plan and equipment; yet, in today’s quickly changing market, these visible assets may represent just a part of a corporate underlying engine for growth. Intellectual capital, representing a corporation’s knowledge, skills and creativity, is one of the largest and most elusive sources of value.

Intellectual capital includes not just human capital but also internal and external capital that shape a corporate unique competitive advantage. While certain types of intangible assets, such as patents or trademarks, are recognized under existing accounting rules, they frequently fail to represent the dynamic knowledge flows that constitute a modern corporation.

Public accounting practitioners and corporate finance management increasingly account for nontraditional assets influencing performance and strategic outcomes. Intellectual capital can influence a corporate resistance to market shocks, form innovation pipelines, and determine whether it remains competitive. However, traditional financial statements typically ignore the full extent of what this represents. GAAP provides a framework for some acquired intangibles, but institutional knowledge that emerges organically within a corporation is often hidden from view. This gap in disclosure poses a challenge for both preparers and users of financial statements.

The potential risk here is obvious: if a key group of employees leaves or a critical research process is lost, a corporation’s true value can vanish virtually instantly. Traditional tangible asset valuations would stay unaltered, giving investors and other stakeholders an imperfect picture of the corporation’s true risk exposure. Accountants, auditors and financial advisors can help bridge this gap by advising on measuring, conveying and preserving intellectual capital within the framework of established accounting guidelines.

It is one thing to assign a fair value to a newly acquired trademark but another to measure institutional memory or collaborative synergy among teams in a multinational corporation. Much intellectual capital cannot be properly capitalized, but its absence from the balance sheet presents a gap for corporations looking to manage their long-term viability. Accountants can assist corporations with internal methods for tracking and nurturing intellectual capital. Although the results may not always be reflected in reported asset totals, these initiatives can help to influence management decisions and identify potential areas for future growth.

The accounting profession has the opportunity to advance by emphasizing intellectual capital in engagements. Voluntary disclosures, management discussion sections and investor presentations may include human, internal, and external capital references. Such expanded reporting could prevent misaligned market valuations and allow for more detailed discussions about how a company intends to sustain its competitive advantage. Rather than seeing intellectual capital as a nebulous idea, accountants can employ analytical tools and key performance indicators to ground talks in acceptable measures, even if those figures do not appear directly on the property, plant, equipment, or goodwill line items.

Corporations that neglect this intellectual capital risk underinvesting in what drives them ahead. Corporations that document and promote intellectual capital, on the other hand, can acquire a better understanding of where resources should be allocated for research, product development and important personnel retention. If accountants assist clients in formalizing these efforts, they will be able to detect early warning indications of talent migration or failures in essential processes, allowing them to reduce risks before the consequences are obvious on the bottom line. By incorporating these insights into financial reporting and strategic direction, corporations can stay on track with stakeholder expectations and lessen the likelihood of unexpected surprises.

Intellectual capital is not a buzzword or a passing trend. It represents the hard-earned expertise, routines and collaborative structures that keep a corporation at the forefront of its field. For accountants, it is critical to consider how to capture this intellectual capital best. Whether through improved internal controls, voluntary disclosures or integrated advisory services, showcasing intellectual capital can assist corporations and stakeholders in better grasping their genuine potential and weaknesses. By adapting our expertise to these domains, we reaffirm accounting’s role as the bedrock of informed business decisions and sustainable performance.

The Public Company Accounting Oversight Board yesterday settled a disciplinary order sanctioning SS Accounting and Auditing and its owner and partner, Saima Sayani, for violating its rules and standards.

The PCAOB imposed a $65,00 fine, revoked the firm’s registration and barred Sayani for deficient work related to two audits of an issuer, China Green Agriculture, and for violating quality control standards. The Board found that Sayani directly and substantially contributed to the firm’s quality control violations.

“The misconduct in this matter presented significant risks to investors, including failing over two years to obtain sufficient appropriate audit evidence supporting the audit opinion on a public company’s financial statements,” PCAOB chair Erica Williams said in a statement. “When auditors put investors at risk, the PCAOB will take enforcement actions to hold those auditors accountable.”

The violations committed include: 

• Failing to obtain sufficient appropriate audit evidence and to perform sufficient audit procedures for multiple significant accounts, including revenue and inventory;
• Failing to perform sufficient audit procedures to test journal entries in response to the risk of fraud;
• Failing to make certain required audit committee communications;
• Failing to determine critical audit matters; and,
• Failing to identify significant findings and issues in an engagement completion document.

The PCAOB also found that the firm’s quality control system did not provide reasonable assurance that the work performed by engagement personnel would meet professional standards and regulatory requirements, and the firm failed to monitor its quality control system.

“The firm and its partner violated PCAOB standards in the conduct of the audits and failed to implement quality control policies and procedures to safeguard against these violations. The sanctions imposed by the Board on the respondents reflect the seriousness of those failures,” Robert Rice, director of the PCAOB’s Division of Enforcement and Investigations, said in a statement.

Without admitting or denying the findings, Sayani and the firm consented to the PCAOB’s order, which:

• Censures both respondents and imposes a $65,000 civil money penalty, jointly and severally, upon them;
• Revokes the firm’s registration with a right to reapply after two years;
• Bars Sayani from associating with a registered public accounting firm, with a right to petition the Board to terminate her bar after two years;
• Requires the firm to undertake remedial actions to improve its system of quality control before reapplying for registration; and,
• Requires Sayani to complete 50 hours of additional continuing professional education and training before seeking to terminate her bar.

The sanction is the latest in a long line of increased enforcement efforts by the PCAOB, most recently including fining Baker Tiller $500,000 over quality control violations on Tuesday.