IRS Expands Paid Family Leave Credit, Employers Can Claim Up to 25% Plus Insurance Premiums
The Treasury Department and Internal Revenue Service issued guidance Wednesday on an expanded federal tax credit for employers that provide paid family and medical leave, including a new option allowing businesses to claim the credit for insurance premiums.
Notice 2026-28 outlines changes to the employer credit under Section 45S of the tax code following enactment of the Working Families Tax Cuts, which made the credit permanent and broadened the types of employers and leave-related costs that qualify.
The credit applies to employers that offer up to 12 weeks of paid family and medical leave annually to eligible workers. Employees may use the leave to recover from a serious health condition or care for certain family members with serious health conditions.
Beginning in 2026, eligible employers can claim a general business tax credit equal to 12.5% to 25% of qualifying wages paid during family and medical leave. The revised law also allows employers to claim a credit for premiums paid for qualifying paid family and medical leave insurance policies, rather than only for wages paid directly to workers on leave.
The law expands eligibility to employees with at least six months of service and to part-time workers who customarily work at least 20 hours a week.
Employers may count leave required under state or local laws when determining whether their leave programs meet federal eligibility requirements. However, wages or premiums associated with mandated leave cannot be included in calculating the federal credit.
Treasury Secretary Scott Bessent said the permanent expansion is intended to give businesses — particularly small businesses — more incentive to provide paid leave without forcing workers to choose between family care and financial security.
IRS Chief Executive Officer Frank J. Bisignano said the changes will make more employers eligible for the credit and provide additional ways for them to offer the benefit.
The notice explains how employers may use the new premium-based method, allocate qualifying premiums and choose between the premium-based and wage-based methods. Treasury and the IRS said they plan to issue proposed regulations with broader guidance on implementation of the expanded credit.
The agencies are seeking public comments on the notice and other issues related to the law’s changes to the paid family and medical leave credit.