Overview of PFML Credit Expansion
Notice 2026-28 (Treasury & IRS, issued August 5, 2026) provides guidance for the expanded Paid Family and Medical Leave (PFML) employer credit authorized by the Working Families Tax Cuts (WFTC). Key expansions: eligibility now includes employees with six months of service and part-time employees working 20+ hours/week; employers can now claim credit for either wages during leave or insurance premiums. (home.treasury.gov)
How the Credit Works
| Component | Pre-WFTC | Under Expansion |
|---|---|---|
| Qualifying employees | Full-time only or long tenure | Part-time (≥20h/week), six months of service |
| What can be included | Only wages during leave | Wages during leave or premiums paid for PFML insurance |
| Maximum leave duration | Up to specified weeks | Up to 12 weeks paid leave per taxable year |
Employers choose between wage-based or premium-based method depending on their PFML structure. Notice 2026-28 provides rules for comparing and electing between methods. (home.treasury.gov)
Action Steps for Employers
- Audit your leave policies: Ensure PFML plans meet statutory requirements under WFTC; part-time eligibility and premium-based methods must align.
- Measure service periods: Confirm which employees have accrued six months of service.
- Implement tracking systems for leave types, hours worked, wages vs. premiums paid.
- Choose an election method: If using the premium method, ensure documentation for how premiums are allocated for leave policies; compare tax benefit vs administrative overhead.
- Review state or local mandates: State-mandated leave can count toward eligibility but may not count toward credit calculation. Notice clarifies this distinction. (home.treasury.gov)
Example Scenarios
Small Business Scenario
A retail shop has 15 employees; two are part-time working 25 hours/week for over a year. The employer purchases PFML insurance and provides leave. Under the premium method, the employer can claim credit for premiums paid for part-time employees too. If calculating wages, only paid wages during leave count.
Larger Organization Scenario
A manufacturing firm employs full-time and part-time workers, offers self-insured leave rather than insurance. They’ll need to use the wage-based method. Part-time workers require documentation of 20+ hours/week over preceding period.
Practical Tips & Pitfalls
- Documentation is crucial. If audited, employers must substantiate hours, wages/premiums, service period.
- Coordinate with payroll and benefits teams so “leave” vs regular work is clearly defined.
- Plan ahead for elections: notice covers how to choose between wage vs premium method—make the selection timely and properly.
- Stay up to date on regulations, since more detailed final regs are expected to be issued.
Summary: Why This Matters
Businesses offering PFML now have greater flexibility and incentive. With tax savings enhanced by covering part-time workers and including insurance premium costs, the expanded credit under WFTC can substantially offset the cost of benefits. But proper planning and record keeping will be essential to claim it correctly.