Tax Planning
Navigating the Expanded Paid Family & Medical Leave Credit: What Employers Need to Know
The Working Families Tax Cuts expanded PFML tax credits—this article walks employers through eligibility, calculation methods, and examples to maximize benefits.
By NomadicTax Research Team • 5-8 min read • September 9, 2026
## What is the PFML Credit & Why It Matters
The Working Families Tax Cuts (WFTC) permanently expanded the **Paid Family & Medical Leave (PFML)** tax credit for employers, via section 45S. Beginning in **tax year 2026**, more employers are eligible and new rules allow for different calculation methods.([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 Criteria
To qualify, employers must:
- Provide paid leave under a program meeting certain statutory requirements (e.g. duration, eligible leave reasons).([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))
- Maintain documentation proving wages paid or premiums incurred for qualifying PFML leave. Note: leave under **state/local mandates** can count toward eligibility, but doesn’t affect calculation under the new credit.([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))
## Credit Calculation Approaches
There are two methods:
| Method | What’s included | Examples |
|---|---|---|
| **Wage-based** | Wages paid to qualifying employees during PFML leave (up to 12 weeks/year) | Company pays employee $1,000/week for 8 weeks leave → wage base $8,000 credit between 12.5%-25% depending on employer size etc.([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** | Premiums paid for PFML insurance policies or similar premiums meeting IRS requirements | If employer pays $1,200 annual premium per employee for qualifying insurance, premium-based election may allow that to count toward credit.([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 must choose between methods (an election). Once chosen, follow IRS guidelines in Notice 2026-28.([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 your paid leave policy to ensure it meets statutory PFML definition. If relying on state-mandated leave, verify eligibility documentation.
2. Calculate cost under both wage-based and premium-based approaches to see which maximizes credit.
3. Keep detailed records of leave taken, wages paid, premiums paid or incurred. Record dates, amounts, employee status.
4. File timely and attach required election forms or statements as per IRS Notice 2026-28 when claiming the credit.
5. Monitor IRS guidance for forthcoming proposed regulations that may adjust eligibility or calculation.([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
JaneCo employs 50 workers. It provides 6 weeks of PFML leave at full wage. If JaneCo meets all requirements, it may claim a credit equal to **12.5%-25%** of those wage payments for 6 weeks per eligible employee. Alternatively, JaneCo pays an insurance premium for PFML covering employees and elects premium-based credit—calculating premium portions allocated to qualifying employees.
By comparing both methods, JaneCo might get a larger credit through the premium method if insurance is inexpensive and covers many.
## Wrap-Up
This expansion under the WFTC is a big opportunity for employers to support workers while obtaining tax savings. With tax year 2026 fully in effect, employers should revise policies, run projections, and document carefully to ensure full credit take-up.