Background on § 45S Credit
The One, Big, Beautiful Bill (OBBB) updated § 45S of the Internal Revenue Code to expand the employer credit for paid family and medical leave, effective from wages or premiums paid after certain dates. New guidance (Notice 2026-28) was published in IRB 2026-34 to clarify the rules. (irs.gov)
Who’s Eligible
- Employers who provide paid family and medical leave per a written policy meeting OBBB requirements.
- Leave must be paid to qualifying employees (as defined under the law).
- Wages or premiums paid during leave must satisfy specific minimum and maximum requirements in the statute.
Key Calculation Points
- Credit is based on a percentage of wages (or premiums) paid to qualifying employees while on leave.
- Applicable wage caps and percentage thresholds depend on employer size and the amount of leave offered.
- Employers must show leave is at least 2 weeks (or leave policy time requirement) and pay at least 50% of regular wages. (Exact minimums depend on statutory rules and subsections in § 45S).
Documentation & Reporting Requirements
- Written policy in place before the leave period.
- Evidence of leave days, wage payments, and qualifying employees must be maintained.
- Credit claimed on the employer's income tax return in the year the wages are paid.
- Follow IRS guidance in Notice 2026-28 for detail about limitations and eligible leave types. (irs.gov)
Example
Suppose XYZ Corp with 20 full-time employees offers 4 weeks of paid family leave, paying 60% of regular wages during leave. Qualifying employees taking leave will allow XYZ to claim a credit equal to a percentage of those wage payments and premiums—if it meets all requirements set out in § 45S and IRS’s Notice 2026-28. This can offset payroll tax liabilities or income tax as applicable.
Tips to Ensure Compliance & Maximize Credit
- Review your leave policy now—it must conform with OBBB definitions.
- Gather data about qualifying employees and leave usage.
- Be meticulous about wage calculations—only qualifying wages count.
- Consult with payroll or legal advisors to ensure policy, practice, and recordkeeping align with IRS expectations.
The expansion of § 45S offers strategic tax savings for employers committed to generous family leave policies. With proper planning, documentation, and policy implementation, it's possible to capture this credit without risking non-compliance or audit issues.