Tax Planning
Paid Family & Medical Leave Credit Expanded: How Employers & Digital Nomads Can Benefit
The Working Families Tax Cuts permanently expanded the PFML credit under section 45S—this article dives into new premium-based methods, eligibility, and what digital nomads should know.
By NomadicTax Research Team • 5-8 min read • September 11, 2026
## What’s New Under the PFML Credit Expansion
The **Working Families Tax Cuts (WFTC)** law permanently expanded the **employer credit for paid family and medical leave (PFML)** under IRC Section 45S. Starting in **2026**, employers may claim a credit based on either wages paid during leave or **premiums paid for insurance policies**, in addition to wages. ([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 include:
- A credit ranging from **12.5% to 25%** of wages paid while employees take qualifying leave years.
- Starting 2026, **premium-based methods introduced** for those who insure the leave instead of directly paying wages. Explains how to elect between wage-based and premium-based 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))
## What Employers Should Do Now
- Determine whether your PFML plan provides paid leave through wages or insurance premiums.
- Compute which method yields greater tax savings—**premium-based or wage-based**—considering your small business status and cash flow.
- Ensure the leave meets statutory criteria to be qualifying: duration (up to 12 weeks per taxable year), eligible reason, etc. Elections might need to be made on your **tax return**.
- Track related state or local mandates—while they can satisfy eligibility for the credit, they **cannot** be used in calculating 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))
## Digital Nomads & Remote-First Employers: What to Consider
Digital nomads working remotely for U.S. employers or clients or employers hiring nomadic contractors must be alert to PFML:
- If you’re considered an **employee** under IRS rules and your employer offers PFML, you may be covered even if working abroad—wage payments or premiums qualify.
- Employers with remote workforce should clearly define eligibility and how leave is documented when workers are dispersed across jurisdictions.
- Think about state-level paid leave programs—some states have their own PFML laws. Federal credit does not override state requirements but may complement them.
## Illustrative Example
- **Scenario**: Your small business of 20 employees provides PFML via an insurance policy (premium method). You pay \$500/month per employee in premium, and your leave program satisfies all requirements.
- If employees take qualifying leave totaling, say, \$30,000 in wages under wage-based method, a 25% credit yields \$7,500. If your total premiums paid were \$12,000 eligible under premium method, a 25% credit would be \$3,000—so wage-based is more valuable in that year.
## Common Mistakes to Avoid
- Failing to elect between wage- and premium-based methods properly—voids the ability to claim the credit under the premium method.
- Assuming state PFML mandates always mean you qualify—state leave might fulfill eligibility but not always satisfy federal credit standards.
- Not maintaining clear documentation of leave, premium payments, or wage payments during leave.
## Federal Timeline & Effective Dates
- Permanent expansion takes effect **in 2026**.
- Related guidance includes **Notice 2026-28**, released in August 2026—clarifying how to apply the new rules. Proposed regulations are forthcoming to fill in implementation gaps. ([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))