Employers can now claim a federal tax credit on premiums paid for family and medical leave insurance, not just on wages paid during leave. IRS Notice 2026-28, issued August 5, gives benefits advisors the first operational roadmap for a credit that Congress made permanent last year.
The guidance follows the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025. The OBBBA made the section 45S employer credit for paid family and medical leave (PFML) permanent. Before the OBBBA, the credit expired and was renewed repeatedly, a cycle that created uncertainty for employers planning their benefits programs.
The most immediate change for advisors is the addition of a premium-based calculation method. Employers using insured PFML arrangements can now elect to calculate the credit based on premiums paid for qualifying leave insurance policies.
Under this method, the credit does not require tracking wages paid to employees who took leave. The credit applies whether or not any employee used the leave during the tax year.
The wage-based method remains available. Employers elect one method or the other. Notice 2026-28 addresses how to allocate qualifying premiums and how to choose between the two approaches.
The credit ranges from 12.5% to 25% of qualifying wages paid during leave, covering up to 12 weeks per qualifying employee per tax year.
In a statement accompanying the notice, Treasury Secretary Scott Bessent said: "Hardworking Americans should not have to choose between caring for a loved one and earning a paycheck. The Working Families Tax Cuts permanently expands the federal Paid Family and Medical Leave Tax Credit, giving businesses, especially small businesses, greater incentives to provide paid leave so workers can care for a newborn or other family member or recover from a serious illness without sacrificing their financial security."
The OBBBA also widened the pool of employees whose leave can qualify for the credit. Employers can now claim it for employees with at least six months of service, down from the prior one-year threshold. Part-time employees who customarily work at least 20 hours per week are also now covered.
Advisors serving clients in retail, hospitality, and healthcare should note the change. Part-time workforces are common in those sectors and the prior one-year threshold excluded many employees.
Employers in states with existing PFML mandates can count state-required leave toward credit eligibility. They cannot count it toward the credit calculation itself. The distinction matters in states with existing PFML mandates, including California, New York, New Jersey, Washington, Massachusetts, Colorado, Connecticut, and Oregon.
The growing number of state PFML programs makes this federal guidance more broadly relevant. Fourteen states and the District of Columbia now have mandatory PFML programs in place or coming online. Several others allow employers to meet their obligations through private insured plans rather than state-run funds.
Employers must also maintain a written PFML policy that complies with the updated section 45S requirements. The first full year in which the amended rules apply is 2026, and the written policy requirement is already in effect.
The guidance applies to tax years beginning after December 31, 2025. Treasury and the IRS intend to issue proposed regulations consistent with the notice, which will apply prospectively. Comments on the notice are due by October 16.
