Tax Planning
Hot New Federal Credits: Paid Family & Medical Leave Expansion Explained
The Working Families Tax Cuts (WFTC) has expanded the employer credit for paid family and medical leave. Here’s how employers can claim it, including the new premium-based method introduced in 2026.
By NomadicTax Research Team • 5-8 min read • September 5, 2026
## What Changed Under WFTC for Paid Family & Medical Leave (PFML)
As of 2026, the **Working Families Tax Cuts (WFTC)** permanently expands and clarifies the employer credit for providing paid family and medical leave. Under **Notice 2026-28**, employers now have two methods to calculate their credit: the **wage-based method** and a **new premium-based method**. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-permanent-expansion-of-paid-family-and-medical-leave-under-the-working-families-tax-cuts?utm_source=openai))
### Credit Basics
- Employers can claim credit for PFML wages paid for up to 12 weeks per eligible employee per taxable year. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-permanent-expansion-of-paid-family-and-medical-leave-under-the-working-families-tax-cuts?utm_source=openai))
- The credit rate ranges from **12.5% to 25%** of qualifying wages or premiums. The percent depends on how generous the leave is (paid amount vs. income replacement rate) and the extent to which eligibility criteria are met. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-permanent-expansion-of-paid-family-and-medical-leave-under-the-working-families-tax-cuts?utm_source=openai))
- Under the premium-based method, **insurance-like premiums paid** toward PFML coverage are eligible — a big change adding flexibility. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-permanent-expansion-of-paid-family-and-medical-leave-under-the-working-families-tax-cuts?utm_source=openai))
## Eligibility Requirements
To qualify, employers must ensure the PFML policy meets statutory requirements under section 45S:
- Leave must be **available to all qualifying employees** for certain family or medical reasons.
- Specified minimum coverage durations or replacement wage rates must be met.
- Employers must decide whether to use the wage-based or premium-based method — the election should be properly documented. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-permanent-expansion-of-paid-family-and-medical-leave-under-the-working-families-tax-cuts?utm_source=openai))
## Examples of How Employers Might Benefit
- **Scenario A**: A company pays wages during PFML leave directly. Employer meets criteria and opts for wage-based method. Eligible wages = wages paid to employees during covered leave; credit = a percentage of those wages.
- **Scenario B**: Employer purchases PFML insurance/premium policy. Under the premium-based method, insurance premiums paid count toward the credit as well. This helps in states where PFML is mandated or insurers provide supplemental policies.
## Things to Watch Out For
- State or local law required leave **can count toward** meeting eligibility for credit, **but not toward credit calculation** under premium method. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-permanent-expansion-of-paid-family-and-medical-leave-under-the-working-families-tax-cuts?utm_source=openai))
- Employers must keep careful records of leave taken, wages paid, and premiums paid to calculate their credit correctly.
- Proposed regulations are forthcoming—current guidance is from Notice 2026-28. Be ready for rules that may clarify or add procedural details. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-permanent-expansion-of-paid-family-and-medical-leave-under-the-working-families-tax-cuts?utm_source=openai))
## Practical Steps for Employers
1. Review current PFML leave policy and whether it meets statutory leave reasons and coverage thresholds.
2. Choose between the wage-based or new premium-based method ahead of filing.
3. Certify and document the chosen method properly for audit trails.
4. File forms accurately, keep evidence and include leave policies in employee handbooks or contracts.
With careful planning, employers who offer PFML can leverage this credit to reduce payroll costs, support staff, and enhance reputation as a family-friendly employer — all while benefiting from federal tax incentives.