On Jan. 1, working people across the state of Maine started paying their share of a new one percent tax on paychecks created by Democratic lawmakers to fund a new paid leave program.
But unbeknownst to many private sector workers, non-government employees will also be shouldering the new tax burden for state government employees, who are not required pay the 0.5 percent employee contribution for the tax.
In other words, state workers are exempt from the tax, but they’ll still get to benefit from 12-weeks of paid leave when the program becomes active in May 2026 because non-government workers and private sector businesses will be paying their way.
Maine State Chamber of Commerce (MSCC) government relations specialist Jacob Lachance said Wednesday that the amount of money Maine’s private sector would be forking over to cover state employees 0.5 percent payroll tax contributions was large enough to exacerbate the revenue crisis facing Augusta.
Currently, Maine Gov. Janet Mills (D) and state lawmakers are trying to figure out a solution for a forecasted $450 million shortfall in the FY 26-27 biennial budget and a $118 million current-year deficit in MaineCare funding.
Lachance expressed MSCC’s concerns about the general fund implications of subsidizing state workers’ taxes during Wednesday’s meeting of the Appropriations and Financial Affairs (AFA).
“The decision to include public sector employees in the scope of this law has and will have a continued impact on the general fund. The method of the remittance outlined over the last month, with the state fully paying the remittance, will have implications on this fiscal year and upcoming biennial budget,” said Lachance During Wednesday’s meeting of Maine’s Appropriations and Financial Affairs (AFA)
Under the new paid leave laws championed by Democratic lawmakers last legislative session, workers will be able to take up to 12 weeks of paid leave for personal or medical reasons. At the end of the leave, employers will be forced to rehire any employee who takes paid leave.
In order to amass the funds required to pay for workers to take vacations for medical reasons and even some ill-defined personal reasons, the state has imposed a massive one percent payroll tax increase.
That tax took effect on Jan. 1, 16 months before working Mainers will have to option to use paid leave. The lead time will allow the Maine Department of Labor and a yet-to-be-determined third-party administrator to bank some of the necessary funding in preparation for what could be a deluge of people looking for some paid vacations.
The program imposes an additional one percent payroll tax on Maine employers with over 15 employees, with half to be paid by the employer and half by the employee.
Smaller businesses will only be required to contribute an additional 0.5 percent payroll tax, but the employer may deduct the full amount from employees, leaving employees of small businesses to pay the same amount as those in larger companies.
Lachance’s statements revealed that not only are state employees eligible for the leave without having to pay the increased tax imposed on all other Maine workers, but their contribution is paid for by the taxpayers already burdened by their own tax increase.
Lachance expressed the disapproval of the MSCC, which fears that continuing to allow state employees to receive benefits at the expense of taxpayers will add to the state’s already massive anticipated budget shortfall.
“We are now concerned that the method of remittance for state employees, if it is maintained, will have a material impact on the state’s fiscal outlook,” said Lachance.
As of December, roughly 23,500 people were employed by the state of Maine, meaning that under the current law. Based on 2024 payroll numbers, taxpayers may be on the hook for more than $8.3 million annually for the one percent tax on state worker pay — and that doesn’t include Maine’s university system and community colleges.
Gov. Janet Mills (D-Maine) has already proposed a slew of new taxes in an attempt to make up for an impending FY 2026-2027 budget shortfall, including increased cigarette taxes, a tax on streaming services, increased fees for licensing, and new fees for medical providers.
But the paid leave tax is the only one where state workers — most of whom tend to vote Democrat — are effectively free riders.
Republicans submitted a bill in December, weeks before the new payroll tax was set to take effect, to repeal the program that imposes yet another tax burden on Maine workers.
That bill is unlikely to pass in Maine’s Democrat-controlled government.
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