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)
- 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)
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)
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) |
| Premium-based method | Premiums paid for PFML insurance policies | Eligible beginning 2026, allowing flexibility for small business or employers using insurance. (irs.gov) |
Election must be made properly; guidance in Notice 2026-28 addresses election between wage and premium method. (irs.gov)
Practical examples
- 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.
- 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.