Permanent Employer Credit for Paid Family & Medical Leave: How to Leverage the WFTC Credit in 2026

Overview of the PFML Credit Under the WFTC

The Working Families Tax Cuts (WFTC), signed into law recently, permanently expanded the employer paid family & medical leave (PFML) credit, codified under IRC §45S. In August 2026, the Treasury and IRS issued Notice 2026-28, offering comprehensive guidance for employers seeking this credit.(irs.gov)

What’s New in 2026?

• Expanded eligibility: More employers qualify under the law, especially those offering PFML that aligns with specific requirements.
• Credit rate range: Employers can claim between 12.5% and 25% of wages (or certain premiums) paid to qualifying employees during leave, up to 12 weeks per taxable year.(irs.gov)
• Premium-based method allowed: Starting 2026, premiums paid to PFML insurance policies may be treated similarly to wages for credit calculations. This provides an alternative to the wage-based method, potentially advantageous for employers who use private insurance.(irs.gov)

Employer & Employee Eligibility Criteria

To take advantage of the credit:

• PFML policies must meet minimum standards detailed in the law—duration, pay rate, covered reasons (family, medical, etc.).
• Employers can use state or local mandated paid leave to satisfy eligibility, but cannot count those mandates in the credit’s calculation itself. The credit is based on wages or premiums paid beyond mandated amounts.(irs.gov)
• Employers must elect between the wage-based or premium-based method, depending on which produces a larger credit. Elections should be made with appropriate documentation.

Examples to Illustrate

• Small business with insurance: A bakery provides PFML via a policy costing $2,000/year in premiums; if employees take leave, that premium cost can be part of the credit. Compare to paying leave wages.
• Large employer paying wages for leave: A tech firm with salaried staff takes the wage-based method since they directly compensate employees during leave.

Actionable Steps for Employers

1. Review leave policies: Ensure your paid leave for family or medical reasons meets the WFTC criteria.
2. Choose your method: Wage-based vs. premium-based—run numbers to determine which offers a larger credit.
3. Track state/local mandates: You can meet eligibility via those mandates but can’t base your credit calculation on mandated amounts.
4. File properly: Amend your annual tax return to include the credit once eligible; keep records in event of audit.

Why This Matters

• Cost savings: Employers who were on fence about offering leave now have stronger incentive.
• Improved employee welfare: More businesses offering PFML reduces pressure on workers during health or family crises.
• Consistency & clarity: Permanent law reduces uncertainty and makes long-term planning possible.

For full guidance, refer to IRS Notice 2026-28.