A permanent credit for employers who offer paid leave
Employers - including small businesses - that provide paid family and medical leave to their employees may be eligible for a general business tax credit under Section 45S. Under the Working Families Tax Cuts, this credit has been made permanent and expanded, making it far more useful for companies that want to offer paid leave. Here is what changed and how to claim it.
What is the employer credit for PFML?
Employers who meet the requirements can claim a credit worth 12.5% to 25% of wages paid to qualifying employees for up to 12 weeks of family and medical leave per taxable year. Leave can be offered for reasons such as:
Having a baby, or adopting or fostering a child.
Caring for the employee's own serious health condition, or that of a spouse, child, or parent.
Handling a situation arising from a close relative on covered active duty in the Armed Forces.
Caring for a close relative who is seriously ill or an injured covered servicemember.
Key enhancements for 2026
The credit is now permanent - no more waiting to see if it will be extended each year.
Expanded eligibility: employers can claim the credit for employees with just six months of service, and for part-time employees working 20 or more hours per week.
Expanded coverage: the credit can be claimed for insurance premiums paid to provide leave, not only for wages paid during leave.
State and local mandates: leave provided under a state or local mandate can count toward eligibility for the federal credit, though not toward the credit calculation itself.
Two ways to claim the credit
Employers can now choose between two methods:
Premium-based (new): based on the qualifying premiums the employer paid for PFML insurance policies.
Wage-based: based on the wages paid while the employee is on leave.
IRS Notice 2026-28 compares the two methods, explains how to allocate qualifying premiums, and describes how to elect between the premium method and the wage method.
Why this matters for non-residents and foreign founders
If you run a U.S. company from abroad and have employees on payroll in the States, this is a credit worth knowing about. Offering paid family and medical leave can help you attract and keep good people, and the federal government now offsets part of that cost permanently rather than year to year. The newly expanded eligibility - six months of service and part-time employees at 20+ hours - means more of your team may qualify than you would expect. The main decision is which method to use: if you buy PFML insurance for your staff, the new premium-based method may be simpler; if you pay wages directly during leave, the wage-based method applies. Because the election and premium allocation rules in Notice 2026-28 are technical, it is worth confirming your approach with a tax professional before you file.
Sources
IRS Tax Tip 2026-64: What employers need to know about the enhancements to the Paid Family and Medical Leave Tax Credit - https://www.irs.gov/newsroom/irs-tax-tips
IRS: Working Families Tax Cuts - Businesses - https://www.irs.gov/newsroom/working-families-tax-cuts-businesses
IRS: Working Families Tax Cuts Provisions - https://www.irs.gov/newsroom/working-families-tax-cuts
IRS Notice 2026-28 - https://www.irs.gov/pub/irs-drop/n-26-28.pdf
IRS: Section 45S Employer Credit for Paid Family and Medical Leave FAQs - https://www.irs.gov/newsroom/section-45s-employer-credit-for-paid-family-and-medical-leave-faqs