Compliance
Employer Credit for Paid Family and Medical Leave: New Guidance under the One, Big, Beautiful Bill
New IRS guidance clarifies how employers can claim the expanded paid family and medical leave credit under § 45S—this article breaks down eligibility, calculation, and documentation.
By NomadicTax Research Team • 5-8 min read • August 27, 2026
## 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](https://www.irs.gov/pub/irs-irbs/irb26-34.pdf?utm_source=openai))
## 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](https://www.irs.gov/pub/irs-irbs/irb26-34.pdf?utm_source=openai))
## 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.