Tax Planning

Navigating the Expanded Paid Family and Medical Leave Tax Credit Under WFTC

With the Working Families Tax Cuts making the Paid Family and Medical Leave credit permanent and broader in 2026, employers and small businesses have new opportunities—and questions—around eligibility, credit calculation, and elections.

By NomadicTax Research Team • 5-8 min read • September 2, 2026

## Overview: What Changed in 2026 As of 2026, the **Working Families Tax Cuts (WFTC)** expanded and permanently authorized the employer tax credit for providing paid family and medical leave (PFML). This credit incentivizes employers to offer up to **12 weeks** of paid leave, with enhanced eligibility and calculation options. ([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 expansions: - Eligibility now includes **part-time employees** working ~20+ hours per week and those with at least six months of service. ([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 claim the credit based on **either wages paid during leave** or **premiums paid toward insurance policies**. Premium-based method is new in 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)) - State or local mandated leave may count toward eligibility (but **not** toward how much credit is computed). ([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)) ## Eligibility Details To claim the expanded PFML credit: - The employer must provide leave that meets certain statutory requirements (qualifying leave period, eligible employees). - Choose between wage-based credit (traditional method) or new premium-based method. Premium method requires paying for leave insurance or third-party policy. - The leave begins in tax year 2026. Claims before that are subject to old rules. ## Credit Amounts and Value The credit rate ranges from **12.5% to 25%** of qualifying leave wages (or premiums), based on the generosity and duration of leave offered. Employers choosing more generous leave (e.g. full pay, longer duration) may see the higher rates. ([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)) ## Strategic Considerations & Examples ### Example 1: Small Business Offers Wage-Based Leave A small employer provides 8 weeks of PFML at full pay to employees who worked 6+ months. Under wage-based method, those 8 weeks are credit-eligible, so the business could claim a credit of up to (wages paid during leave) × credit rate (say 20%). ### Example 2: Employer Purchases Insurance Premiums Method Employer pays premiums to a qualifying PFML insurance plan for eligible employees. Instead of tracking wages during actual leave, premiums paid for eligible policy coverage may be credit-eligible—helpful for businesses with multiple leaves or unpredictable leave timing. ### Example 3: State Mandated Leave Synergies If local law requires certain PFML, that leave can help satisfy eligibility thresholds. But that mandated leave **cannot be counted** in computing how much credit you're allowed (i.e. cannot inflate your credit). Plan leave policies accordingly. ## Implementation & Planning Tips - Consider offering **at least six months of service** and **20-hour/week schedule** eligibility to maximize reach. - Evaluate wage vs. premium method carefully—premium method may simplify administration but needs advance setup. - Document everything meticulously—employee eligibility, leave durations, insurance policies, wages. IRS guidance (Notice 2026-28) is detailed but proposed regs are still coming. ([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)) ## Conclusion The WFTC’s permanent expansion of the PFML credit is a big win for employers who value their workforce’s flexibility and well-being. With the right policies and tracking, businesses of all sizes can capture meaningful tax savings while supporting employees during major life events.