Planning For Parental Leave Benefits

Brandon R. Amaral, CFP®, EA
Brandon R. Amaral, CFP®, EA

Founder & Financial Planner, Amaral Financial Planning

Having a child has been described as an exciting, stressful, terrifying, and rewarding experience (at the same time). While everyone’s journey is different, there is one factor that most have in common: managing finances.

Depending on your state or the company you work for, you may be eligible for certain benefits to replace your income. Some can be tax-free while others are fully taxable.

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Here is an overview of Parental Leave Benefits:

State Disability

For residents of California, you are eligible to apply for State disability before and after giving birth. Depending on your income, you can earn up to $1,540 per week of tax-free California disability benefits. Birthing-parents can receive 4 weeks of benefits before giving birth (or more if designated by your doctor) and 6-8 weeks of benefits after giving birth.

It is important to note that California has a 7-day waiting period before you will receive your benefits. Once approved, you will receive your benefits by either mailed checks or deposited onto a debit card.

Paid Family Leave

There are also additional benefits that are available to both birthing and non-birthing parents so that you can bond with your child. There are currently nine states that offer benefits: California, Colorado, Connecticut, Massachusetts, New Jersey, New York, Oregon, Rhode Island, Washington, and the District of Columbia.

In California, both parents are eligible to receive up to 8 weeks of Paid Family Leave (PFL) benefits to be used any time during the first 12 months of the child entering your family (including adoptions). Depending on your income, you can earn up to $1,357 per week of taxable PFL benefits in California. There is no waiting period to receive these benefits.

Short-Term Disability Insurance

Another benefit that is becoming more common in the workplace is short-term disability insurance (SDI). This might be an employer-covered benefit or require you to opt in during open enrollment. This insurance will usually provide you with a “top-up”, since the State disability and PFL benefits can be lower than your normal pay.

For SDI premiums that are paid for by your employer or paid by you with pre-tax dollars, any benefits you receive will be considered taxable income. However, if you pay for the premiums yourself with post-tax dollars, the benefits you receive will be considered tax-free.

Savings Fund

For individuals who are not eligible for State or workplace benefits, it is important that you build a strong savings account. While typical emergency funds are 3-6 months of your expenses, you should keep 9-12 months of expenses in cash to help make up for any lost income.

In addition, babies aren’t cheap. Between diapers, food, clothes, daycare, and activities, your monthly spending will likely increase with a new member of your household. Keeping extra cash in your savings can help cover both expected and unexpected expenses.

Having an understanding of the benefits available and creating a plan can help minimize your financial stress while welcoming your little one. If you would like to work with a financial planner to walk you through your options, I would love to help you!

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Disclaimer: This blog is for informational purposes only, and should not be considered advice or recommendations. All opinions expressed herein are solely those of Amaral Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made to another parties’ informational accuracy or completeness. You should consult your financial advisor, tax professional or legal counsel prior to implementation.