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IRS Announces Guidance on the Expansion of Paid Family and Medical Leave
On August 5, 2026, the Internal Revenue Service issued Notice 2026-28 providing guidance on the employer credit for paid family and medical leave (“PFML”) under the Working Families Tax Cuts (“WFTC”). The WFTC makes permanent and expands eligibility and coverage for employers offering PFML benefits to employees.
“Hardworking Americans should not have to choose between caring for a loved one and earning a paycheck,” said Treasury Secretary Scott Bessent. “The Working Families Tax Cuts permanently expands the federal Paid Family and Medical Leave Tax Credit, giving businesses, especially small businesses, greater incentives to provide paid leave so workers can care for a newborn or other family member or recover from a serious illness without sacrificing their financial security. Today's guidance provides employers with the clarity they need to claim the enhanced credit, supporting American workers, families, and businesses.”
“The permanent expansion of the credit encourages businesses to provide paid family and medical leave,” said IRS Chief Executive Officer Frank J. Bisignano. “The changes enacted by the Working Families Tax Cuts will make more employers eligible for the credit and give them more ways to offer this benefit to their workers.”
Permanent Expansion of the Paid Family and Medical Leave Tax Credit
The Working Families Tax Cuts permanently expands the employer tax credit for paid family and medical leave, providing businesses, particularly small businesses, with greater incentives to offer up to 12 weeks of paid leave. Employees may use the leave to recover from a serious health condition or to care for certain family members with serious health conditions.
The WFTC also makes several key improvements to the credit, including:
- Expanded Eligibility: Employers can claim the credit for employees with six months of service and for part-time employees customarily working 20 hours or more per week.
- Expanded Coverage: Employers can claim the credit for insurance premiums to provide leave, or wages paid during leave.
- State and Local Mandates: Employers can count leave provided under state or local mandates toward the eligibility for this federal tax credit, but not toward the credit calculation.
Beginning in 2026, employers can claim the credit for premiums paid for PFML insurance policies, in addition to wages paid during PFML leave. To help employers apply the new premium-based method, the Notice 2026-28 addresses how the premium-based method compares to the wage-based method, how to allocate the qualifying premiums, and how to elect between the premium method and the wage method. Forthcoming proposed regulations will provide broader guidance to address the statute comprehensively and provide certainty to taxpayers.
Beginning in 2026, more employers providing paid family and medical leave that meets certain requirements can take advantage of a general business tax credit ranging from 12.5% to 25% of wages paid to qualifying employees for up to 12 weeks of family and medical leave per taxable year.
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