Tax Planning
How the New Paid Family & Medical Leave Credit Under WFTC Changes Employer Planning
Recent IRS guidance under Notice 2026-28 permanently expands eligibility and gives employers flexibility in how they claim the tax credit — learn what qualifies, how to plan, and what it means for businesses in 2026 and beyond.
By NomadicTax Research Team • 5-8 min read • September 1, 2026
## What’s Changed with the PFML Credit under Working Families Tax Cuts (WFTC)
In August 2026, the IRS and Treasury released **Notice 2026-28**, which provides authoritative guidance on the **employer credit for paid family and medical leave (PFML)** under the WFTC ― now **permanent and expanded**.([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)) Key changes include:
- **Eligibility expansion:** Employers may now claim the credit for **employees** who have worked **at least six months**, and for **part-time staff** carrying out **20+ hours/week**. Employees who were previously excluded can now qualify.([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))
- **Premium-based method allowed:** Beginning in 2026, the credit can be claimed for either **wages paid during leave** *or* **premiums paid for leave insurance policies**. Businesses can choose the method that maximizes their benefit.([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 rate & coverage duration stays:** Up to **12 weeks of leave per taxable year**, with credit rates between **12.5% to 25%** of qualifying wages or premiums depending on leave policies.([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))
## Implications for Employers – Actionable Insights
**For small businesses:** This expansion can make PFML tax credit much more accessible. If you weren’t offering paid family leave or providing leave insurance before, now may be a good time to explore options because premium-based methods offer more flexibility.
**Selecting the optimal method:** Map out your leave wage costs versus what you might spend on insurance premiums. Sometimes insurance costs are more predictable and can lower cash flow uncertainty, but wages might offer a higher credit depending on leave usage.
**Eligibility tracking:** Ensure you track employee tenure and weekly hours carefully. Six-month service and 20+ hours/week are now binding eligibility thresholds. Misclassifications could lead to audit risks.
**Interaction with state mandates:** If your state requires PFML (e.g., California, New York), you can count leaves required under state law toward eligibility, but **not for calculating the credit amount**. The state-mandated leaves can make more employees eligible but don't change limits or rates.([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
- **Example 1: Small business using wage method**
Jane’s Café employs part-time baristas (25 hrs/week) who have been on the payroll for 8 months. An employee takes 4 weeks family leave. Jane can now claim the PFML credit for those wage payments since employee meets both service & hours threshold.
- **Example 2: Firm opts for premium method**
ABC Co. purchases PFML insurance with a premium of $5,000/year. Under the new rules, for 2026, ABC Co. may choose to claim the tax credit based on those premiums rather than calculating costs based on wages during leave.
## What Employers Should Do Now
1. Review payroll/human resources data to confirm which employees meet **six-month service** and **part-time 20-hour/week** eligibility.
2. Analyze what your typical leave usage looks like; simulate credit under wage vs premium methods.
3. Update internal policies or leave insurance contracts if needed to align with IRS guidance.
4. Prepare documentation: leave eligibility, hours worked, premiums paid. Good records are essential if the IRS rolls out proposed regulations enforcing these guidelines.
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**Conclusion**: The PFML credit changes under WFTC offer meaningful relief for employers. By expanding eligibility, adding the premium option, and clarifying state leave interaction, the guidance opens doors for more businesses to support workers during family or medical leave — while gaining a federal tax incentive. Planning now can help maximize these benefits starting with tax year 2026.