Tax Planning
Permanent Employer Credit for Paid Family & Medical Leave: How to Leverage the WFTC Credit in 2026
New guidance under the Working Families Tax Cuts expands the employer credit for paid family & medical leave. Employers can now use a premium-based method; here’s what that means and who qualifies.
By NomadicTax Research Team • 5-8 min read • August 25, 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](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’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](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 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](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))
## 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](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 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.