WASHINGTON, D.C. — The Treasury Department and Internal Revenue Service issued guidance on an expanded employer tax credit for paid family and medical leave, giving businesses beginning in 2026 the option to calculate the benefit using qualifying insurance premiums instead of only wages paid to workers on leave.
Notice 2026-28 implements changes under the Working Families Tax Cuts that make the federal paid family and medical leave credit permanent and broaden the employers and workers that can qualify.
Under the expanded Section 45S credit, eligible employers can generally claim a business tax credit ranging from 12.5% to 25% of wages paid to qualifying employees for as many as 12 weeks of family and medical leave per taxable year.
The law also lowers the service threshold for qualifying employees to six months and extends eligibility to part-time employees who customarily work at least 20 hours per week.
A significant change beginning in 2026 allows employers to claim the credit based on premiums paid for qualifying paid family and medical leave insurance policies. Previously, the credit was structured around wages paid during qualifying leave.
Notice 2026-28 addresses how the new premium-based method compares with the wage-based approach, allocation of qualifying insurance premiums and the process for choosing between the two methods.
“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,” IRS Chief Executive Officer Frank J. Bisignano said.
Employers may also count paid leave provided under state or local mandates when determining eligibility for the federal credit. Such mandated leave cannot, however, be included when calculating the amount of the federal tax credit.
Qualifying leave can include time for an employee to recover from a serious health condition or care for certain family members with serious health conditions. The credit can apply to as many as 12 weeks of qualifying leave.
Treasury Secretary Scott Bessent characterized the changes as particularly relevant for smaller businesses considering paid-leave benefits.
“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,” Bessent said.
Treasury and the IRS plan to issue proposed regulations providing broader guidance on the statutory changes. The agencies are also seeking public comments on Notice 2026-28 and other implementation issues involving the amendments to Section 45S.
Additional information is available at IRS.gov.
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