Tax Planning
Maximizing the Expanded Credit for Paid Family & Medical Leave
Permanent expansion of the PFML employer credit gives business owners and employees new options under the Working Families Tax Cuts.
By NomadicTax Research Team • 5-8 min read • September 3, 2026
## What changed under the Working Families Tax Cuts (WFTC)
- Section 45S, the **Paid Family and Medical Leave (PFML) employer credit**, is now permanently **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))
- Employers can now file for qualified leave up to **12 weeks** and elect between two methods to compute credit: wage-based or premium-based. ([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 eligibility rules
- PFML must meet specific requirements: paid leave for a newborn, serious illness, or caring for a family member.
- Employers must maintain eligible programs that qualify under federal definition; state-mandated leave can count toward eligibility, but **not** toward credit calculation. ([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))
## How to claim & calculation methods
| Method | What it covers | Typical Percent |
|---|---|---|
| **Wage-based method** | Wages paid to qualifying employees during leave | Between **12.5 % to 25 %** as per statute, based on employer’s leave program. ([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** | Premiums paid for PFML insurance policies | Eligible beginning 2026, allowing flexibility for small business or employers using 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)) |
Election must be made properly; guidance in **Notice 2026-28** addresses election between wage and 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))
## Practical examples
1. **Small Business A** offers leave to employees without a PFML insurance policy. They can use wage-based method. If employee takes 6 weeks of leave, employer claims credit against wages paid during that leave.
2. **Company B** purchases PFML insurance policy premiums to cover leave. Starting in 2026, they can choose the premium-based method, reducing cost volatility during leave events.
## Implications for employees & businesses
- **Employees** get better family/medical leave support with financial cost less burdensome to the employer.
- **Businesses**—especially small and medium—get a stronger incentive and clearer choices.
- Make sure internal leave policies, payroll, and insurance are well-coordinated to satisfy eligibility and documentation needs.
## Action plan for businesses
- Review your current leave offerings and insurance policies.
- Determine whether wage-based or premium-based method makes financial sense annually.
- Update payroll systems to segregate PFML-eligible wages or premiums.
- Keep comprehensive records of when leave is taken and premiums are paid.
- Monitor forthcoming proposed regulations for more detailed rules—file comments if needed.
By leveraging the expanded PFML credit, businesses not only support worker wellbeing, but also gain tax savings—incentivizing a healthier workplace.