Hi, I have received paid time leave through the state of washington. The IRS has not provided clear guidance on that matter. Do I need to report it?

Unfortunately, no one knows how the IRS will treat this.

Paid Family Leave itself is considered to be a form of unemployment compensation. As such, it would normally be taxable on the federal level.

However, the American Rescue Plan made up to $10,200 of unemployment to be tax-free. Did Congress intend for that to apply to things like PFL that are treated like unemployment?

Congress did not say in the law (I am sure it never occurred to them), and the IRS is very busy at the moment trying to draw up all sort of rules and regulations to handle the 1,001 new situations that have arisen thanks to the new law.

"If I dont report this year and later the IRS decides it is taxable, what do I need to do?"

If you hear that the IRS has decided that this (PFL, that is) is taxable on the federal level, then you can just file an amended return, and pay the new tax. Or you can go ahead and claim the PFL as income, with the plan to amend you return later if it turns out not to be taxable.

Or you can not file it and wait for an IRS letter if they want money.

Frankly we have no way of knowing until the IRS issues its guidance for the new law. And when TurboTax actually gets some guidance form the IRS, then the software will be updated. We have no way of knowing when this will happen.

You have two choices, pay it and hope you get it back, or not pay it and have the understanding that you may have to pay it back sometime.