Tax Planning
Leveraging the Permanent Expansion of the Paid Family & Medical Leave Credit under WFTC
The Working Families Tax Cuts has widened access and methods for PFML credits—here’s how employers and workers can benefit starting in 2026.
By NomadicTax Research Team • 5-8 min read • September 14, 2026
## Key changes under the Working Families Tax Cuts Act (WFTC)
- The PFML employer tax credit is now **permanent**, expanded eligibility for **more employers**, and gives employers **two ways** to claim the credit—either based on wages paid during leave or **premiums for PFML insurance**. ([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))
- Ranges from **12.5% to 25%** of wages paid for up to **12 weeks** of qualifying family and medical leave per tax year. Premiums paid for qualified PFML insurance policies starting in 2026 may also be used. ([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 can count leave mandated by state/local law toward eligibility—but **not toward the calculation of wages eligible** for the credit. ([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))
## Who benefits most?
- **Small and medium-sized businesses** that offer PFML programs or insurance premiums to employees now have clearer paths to claim the credit.
- Employers in states with PFML mandates can partner state/local leave with the federal credit.
- Employees get more stability knowing leave policies are supported by permanent tax incentives.
## Actionable steps for employers
1. **Review your PFML plan**: If you already offer PFML paid leave or purchase PFML insurance, determine which method (wage-based or premium-based) yields a higher credit.
2. **Document leave and premium payments**: Ensure records distinguish between wages paid during leave and premiums paid for PFML insurance.
3. **Understand the maximum credit limits** and interaction with state mandates.
4. **Prepare for calculations**: Section 45S of the IRC requires certain proportionality rules—employers should track hours, payment amounts, and eligible employees.
5. **Consult with tax professionals** about upcoming proposed regulations which may offer deeper clarity and additional options. ([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**: A company with 50 employees offers PFML leave—12 weeks paid leave. If they offer wage-based leave and 20 wages are paid \(e.g. \$600/week\), then the credit ranges from 12.5% to 25% depending on hours etc.—resulting in several hundred to several thousand dollars of credit per eligible employee.
- **Example 2**: Another business purchases PFML insurance premiums totaling \$10,000 in 2026 for eligible employees. Under the premium-based method, they may be able to apply part or all toward the credit (with proper election) instead of tracking each wage.
## Interactions & compliance tips
- Will PFML benefits from state/local law affect eligibility? **Yes for eligibility**, **no for eligible credit calculation**.
- Ensure **elect elections properly** (premium vs wage) where required.
- Watch guidance from IRS in Notice 2026-28 and forthcoming proposed regulations.
## Why this matters for workforce strategy
- Helps attract and retain talent, especially in a tight labor market.
- Shows commitment to family care and medical leave—can be part of benefits messaging.
- Federal credit helps offset costs of offering more generous leave.
> Employers: use 2026 to plan your PFML programs and recordkeeping to maximize this enhanced tax credit.