Tax Planning
Maximizing the New Employer Credit under the PFML Expansion
The Working Families Tax Cuts law permanently expands the Paid Family and Medical Leave credit—employers need to know how to claim it using both the wage-based and new premium-based methods beginning 2026.
By NomadicTax Research Team • 5-8 min read • August 22, 2026
## What’s New with PFML Under WFTC
The **Working Families Tax Cuts (WFTC)** has made permanent expansions to the *Paid Family and Medical Leave (PFML)* credit as of 2026. Employers can now claim the credit not just for wages paid during eligible leave, but also for **premiums paid for PFML insurance 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))
## Key Elements of the PFML Credit
- **Credit rate**: Between 12.5%–25% of wages paid to qualifying employees during up to **12 weeks** of PFML annually. ([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 alternative**: If an employer is insured for PFML or mandates it under state/local law, they can claim a credit against premiums paid rather than wages. This method kicks in starting 2026. ([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))
- **Eligible leave** includes time off to care for family members, birth, serious illness, etc. If state or local paid leave mandates are in place, those can count toward meeting eligibility—but **not** toward the credit amount. ([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))
## Action Steps for Employers
1. **Review your PFML policy**: Are you offering a wages-based PFML leave program, an insurance premium option, or both? Decide which method gives you the higher credit.
2. **Document everything**: Keep clear records for wages paid during leave, premiums paid, durations, and the eligibility of employees.
3. **Tax planning**: This credit could offset payroll tax or income tax liabilities—consult your tax advisor to make sure you’re claiming it properly.
4. **Stay tuned for regulations**: Proposed regulations will provide detailed guidance, especially around determining eligibility, allocating premiums vs. wages, and compliance. ([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))
## Example
Suppose a small business employs an eligible worker who takes 6 weeks of family medical leave in 2026, while the employer pays $1,000 per week of wages during that leave. Under the **wage-based method**, assuming a credit rate of 20%, that employer earns **$1,200** credit (6 weeks × $1,000 × 20%). If instead the employer uses the **premium-based method** and pays $500/month in PFML insurance premiums for that employee, they might claim a credit of **$125–$250** (25% max) times the total premiums paid, depending on rules. Which method is better will depend on wage levels, insurance costs, and how leave is structured.
## Implications & Takeaways
- **High impact for small businesses**: This expansion is especially helpful for small employers who previously couldn’t afford PFML insurance.
- **Behavioral targets**: Encourages employers to provide PFML benefits and not simply rely on state mandates.
- **Planning for 2027+**: With the law indexing contribution limits and other elements after 2027, businesses should model longer-term cash flow impacts now.
**Bottom line**: starting 2026, employers have more flexibility and more opportunity to reduce their federal tax burden by offering PFML, so structuring leave policies and insurance coverage wisely can enhance both employee care and tax savings.