Tax Planning

Maximizing Your Federal Benefits: Paid Family & Medical Leave Credit Explained

Explore how the recent IRS guidance expands the permanent Paid Family and Medical Leave credit under the Working Families Tax Cuts, what qualifies, and how employers can benefit starting in 2026.

By NomadicTax Research Team • 5-8 min read • August 19, 2026

## What Is the PFML Credit and Why It Matters The **Paid Family and Medical Leave (PFML) credit**, made permanent by the **Working Families Tax Cuts (WFTC)**, incentivizes businesses—particularly small ones—to offer paid leave that allows employees to care for newborns, seriously ill family members, or recover from major health events without losing income. ([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 Updates for 2026 - **Expansion of eligibility**: Employers offering PFML benefits that meet certain statutory requirements are now eligible for a **general business credit** between **12.5% to 25% of wages paid** during qualifying leave periods, up to **12 weeks per taxable year**. ([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 introduced**: Starting in 2026, employers can claim the credit **not only for wages** paid during PFML leave, but **also for premiums paid** for PFML insurance policies. The IRS guidance (Notice 2026-28) clarifies how to choose between the wage-based vs. premium-based 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)) - **Counting state/local leave**: Employers may include leave required by state or local mandates toward eligibility—but **only wages paid under these mandates** count toward the credit (not the mandates themselves) when calculating the benefit. ([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. **Assess leave policies** to determine if they meet eligibility requirements—e.g., leave duration, eligibility rules, and premium payments. 2. **Choose your method**: wage-based vs. premium-based—run comparisons to see which produces better credit value. 3. **Track properly** leave wages and insurance premiums, filing documentation consistent with IRS guidance. 4. **File appropriate forms** (credit shown on business tax returns), ensuring documentation of leave covered. 5. **Stay tuned for upcoming regulations**: IRS will publish proposed regulations to further clarify § 45S (the Code section for PFML credit) following the notice. ([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 Scenario Suppose a small business employs a worker who takes six weeks of leave in 2026, earning \$20,000 in leave wages. If the employer qualifies under WFTC requirements and uses the **wage-based method** with a credit rate of, say, **20%**, the credit would be \$4,000. Alternatively, if using the **premium-based method**, and the insurance premiums paid for PFML insurance total \$10,000 for the year, at the same rate, the credit might be \$2,000—so wage-based may yield more value in that case. ## Bottom Line The IRS guidance effective 2026 permanently expands the PFML credit to include insurance premiums and establishes clearer rules. Whether you're already offering leave benefits or considering implementing them, now is a good time to evaluate potential tax savings under WFTC.