Why is NYS paid family leave taxable if it is paid for by employee after tax income?

It is a deduction form their wages. It is not an after tax deduction.

I'm wrong.

The issues for NY, MA, etc, have not been resolved. They are stuck in a gray area. From the reading I have done, it seems to be a problem with how the laws got written and then executed. Some FMLA/Sick are administered by the State, and some by the employer. Some include employee "contribution" but that seems more like a tax to help fund the program. If it were truly 100% employee paid and not taxable, it also would run out when the employee's funds are gone. It's seems a bit more like an issue with the way disability insurance is managed, or worker comp. However, it's mostly handled like Unemployment. Remember that Fed Unemployment is managed by each State.

On this forum, you see people occasionally asking about, "Has the IRS ruled on MA family leave?" and this dilemma really is what they are referring to.

Once you figure it out, tell it to the States and Feds and the IRS. I'm sure they'd like some help with it.