What’s New with the PFML Credit
Starting in 2026, the Working Families Tax Cuts (WFTC) significantly widen eligibility and change how the employer credit for Paid Family and Medical Leave (PFML) operates. Employers now have two ways to calculate the credit—on wages paid or on premiums paid for eligible leave insurance. Other important expansions include part-time worker eligibility and counting state/local mandated leave (addressed under Notice 2026-28). (irs.gov)
Key Provisions and Who Qualifies
- Eligibility criteria now include both full- and part-time employees who’ve worked at least 6 months and average 20+ hours/week. Previously, some workers were excluded. (irs.gov)
- Employers can opt to use a premium-based method (for insurance policies) instead of calculating based solely on wages paid during leave. This gives flexibility, especially for small businesses. (irs.gov)
- The credit rate ranges between 12.5% to 25% of qualifying wages or premiums, based on certain criteria like wage replacement rate during leave. (irs.gov)
Action Steps for Businesses
- Review leave policies to ensure they meet WFTC minimums—e.g., 12 weeks leave, wage replacement, etc.
- Decide which method works better—wage-based vs premium-based—for your benefit programs.
- Document leave and payments carefully, especially for part-time and local-mandated leave being credited.
- Monitor upcoming proposed regulations (expected post-Notice 2026-28) for clarifications and compliance deadlines. (irs.gov)
Practical Examples
| Scenario | Wages Paid Method | Premiums Paid Method |
|---|---|---|
| Small business with part-time workers | Can claim credit for wages paid during leave after 6 months or 20 hrs/week service — e.g., 15 hr/week employee would qualify once requirements met. | If paying into a qualifying insurance policy, premiums paid can also claim credit—might simplify administration. |
| Employer with state-mandated leave law | Leave required by law counts toward eligibility for credit, but the credit calculation doesn’t treat state-mandated leave differently. | Premiums for insurance that covers required leave can still be credited, but must track which portion is for qualifying leave. |
Why It Matters
This change shifts financial incentives for employers, especially small businesses, to provide PFML benefits. It also eases burdens by letting many credits be claimed without navigating a patchwork of leave laws. The premium option opens up flexibility for businesses already using insurance products to manage leave. Keeping up with documentation and upcoming regulatory guidance will be key to leveraging the full benefit.
This article is educational. For specific filings, consult your tax advisor or legal professional.