Labor & Employment Law Daily Wrap Up, EXPERT INSIGHTS—Colorado FAMLI: new changes in the new year impact process, duration + more, (Jan 2, 2026)
Law Firms Mentioned:Jackson Lewis
Organizations Mentioned:Jackson Lewis, PC
By Melisa Panagakos and Lauren Ayoub of Jackson Lewis P.C.
Takeaways
Changes to Colorado's Family and Medical Leave Insurance (FAMLI) program taking effect 1.1.26.
FAMLI will provide up to an additional twelve weeks of leave for individuals taking care of an infant in NICU.
Employers may require an employee to apply for or exhaust FAMLI as a requisite to accessing employer provided benefits pursuant to the employer's applicable policy but not as a prerequisite to accessing any types of leave that an employer is required to provide or that the individual may be eligible to apply for by law.
Related links
IRS Tax Guidance Rev. Rul. 2025-4
Article
Over the past year, a series of new laws, regulatory amendments, and official guidance have been introduced that will affect employer obligations under the Colorado Family and Medical Leave Insurance Program (FAMLI) beginning on Jan. 1, 2026.
Key changes include:
The IRS issued new Tax Guidance on Feb. 10, 2025, that will affect FAMLI's medical leave benefits that include guidance on how employers report FAMLI premiums. IRS Rev. Rul. 2025-4.
Colorado adopted Senate Bill 25-144 (SB 25-144) on May 30, 2025, which:1) Expanded FAMLI to allow eligible employees to take up to an additional 12 weeks of FAMLI leave to care for a neonatal intensive care unit (NICU) patient for a total of 24 weeks;2) Reduced the premium for FAMLI from 0.9% to 0.88% for the upcoming 2026 calendar year; and3) Required that the director of the FAMLI Division on or before Sept. 1 of the preceding year adopt the premium rate for the following calendar year.
Colorado adopted amendments to the FAMLI Rules on Oct. 31, 2025, that will become effective on Jan. 1, 2026. These amendments include changes to ensure SB 25-144 compliance, as well as non-substantive amendments to align FAMLI with the Colorado Administrative Procedures Act.
IRS Guidance, IRS Rev. Rul. 2025-4
Beginning in 2026, the IRS will require employers with at least 10 employees to cover their portion of Social Security and Medicare taxes (FICA) and federal unemployment taxes (FUTA) on certain FAMLI medical leave benefits.
When an employee takes medical leave for their own serious health condition (including related to pregnancy), the IRS will treat the benefits they receive from FAMLI as taxable wages, called "third-party sick pay." This IRS rule does not apply to family leave benefits (like bonding with a new child or caring for a family member), only to medical leave for the employee's own health condition.
Employees' portion of FICA will be handled by the FAMLI Division, and the Division will send employers regular updates and year-end statements so employers can report correctly on W-2s.
The IRS guidance does not make FAMLI benefits subject to state income tax. No paid FAMLI leave benefits are taxable for Colorado state income tax purposes, and employers should not increase the state income tax wages on the employees' W-2 due to FAMLI premium payments.
Colorado SB 25-144
Premium rate drop
Pursuant to SB 25-144, the premium rate will drop from 0.9% to 0.88% of wages in 2026. This rate is subject to change annually.
For the 2027 calendar year and each year thereafter, on or before Sept. 1 of the preceding year, the FAMLI director will set the premium rate annually. This rate must ensure the balance of the fund is an amount not less than six months' worth of the fund's projected expenditures for performance of the director's functions and duties. The premium amount, however, is not to exceed 1.2% of wages per employee.
NICU expansion
Colorado FAMLI will provide up to 12 additional weeks of paid family and medical benefits to a covered individual who is providing care for an infant in a neonatal intensive care unit (NICU).
Parents who provided care to an infant in NICU before Jan. 1, 2026, are not precluded from receiving benefits.
This new type of leave is different from leave to care for a new child and does not reduce a employee's entitlement to other types of paid leave including bonding leave after the child is discharged.
Rule Amendments Clarify Use of FAMLI Leave
Expansion of term "care"
A new definition of the term "care" provides, "assistance with basic medical, hygienic, nutritional, safety, transportation needs, physical care, or psychological comfort." 7 C.C.R. 1107-3-3.4(6). Employers should ensure they can identify and provide notice to possible eligible participants under the new definition.
FAMLI benefits as prerequisite to employer-provided leave benefits
Under the amendments to the rules, an employer "may" require an employee to exhaust any available FAMLI leave as a condition for other forms of leave provided by the employer pursuant to its policies, including, but not limited to, short-term and long-term disability benefits.
However, an employer cannot require an employee to exhaust or begin FAMLI leave as a condition to access any forms of leave the employee may be entitled to apply for, such as leave under the Family and Medical Leave Act or sick leave mandated by the Colorado Healthy Families and Workplaces Act.
Additionally, no individual can be required to apply for or exhaust short-term or long-term benefits or other benefits as a condition to access any state or approved private benefit plans.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Melisa Panagakos and Lauren Ayoub
Jackson Lewis P.C.
666 3rd Ave 28th Floor
New York
NY 10017
United States
Tel.: +1 212 545 4000
E-mail: myupdates@jacksonlewis.com
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Attorneys: (Jackson Lewis).
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