The Treasury Department and the IRS recently issued guidance on the employer credit for paid family and medical leave under the One Big Beautiful Bill Act.
President Donald Trump’s signature tax-and-spending law, which Republicans are now calling the Working Family Tax Cuts, makes the tax credit permanent and expands eligibility and coverage for employers offering paid family and medical leave benefits to employees.
“Hardworking Americans should not have to choose between caring for a loved one and earning a paycheck,” Treasury Secretary Scott Bessent said in a statement on Aug. 5. “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. Today’s guidance provides employers with the clarity they need to claim the enhanced credit, supporting American workers, families, and businesses.”
“The permanent expansion of the credit encourages businesses to provide paid family and medical leave,” added IRS CEO Frank Bisignano. “The changes enacted by the Working Families Tax Cuts will make more employers eligible for the credit and give them more ways to offer this benefit to their workers.”
The Trump tax law, enacted in 2025, provides businesses with greater incentives to offer workers up to 12 weeks of paid leave. Employees can use the leave to recover from a serious health condition or to care for certain family members with serious health conditions.
The OBBBA/WFTC also makes several key improvements to the credit, according to the IRS, including:
- Expanded eligibility: Employers can claim the credit for employees with six months of service and for part-time employees customarily working 20 hours or more per week.
- Expanded coverage: Employers can claim the credit for insurance premiums to provide leave, or wages paid during leave.
- State and local mandates: Employers can count leave provided under state or local mandates toward the eligibility for this federal tax credit, but not toward the credit calculation.
Beginning this year, employers can claim the credit for premiums paid for paid family and medical leave insurance policies, in addition to wages paid during leave.
Notice 2026-28, issued by the IRS on Aug. 5, aims to help employers apply the new premium-based method by explaining how it compares to the wage-based method, how to allocate the qualifying premiums, and how to elect between the premium method and the wage method.
Forthcoming proposed regulations will provide broader guidance to address the statute comprehensively and provide certainty to taxpayers, the IRS said.
Also beginning in 2026, more employers providing paid family and medical leave that meets certain requirements can take advantage of a general business tax credit ranging from 12.5% to 25% of wages paid to qualifying employees for up to 12 weeks of family and medical leave per taxable year.
The Treasury Department and the IRS say they intend to issue proposed regulations consistent with this guidance.
Comments are requested by Oct. 16 on all aspects of Notice 2026-28 and any other issues regarding implementation of the amendments to Internal Revenue Code Section 45S by the OBBBA that should be addressed in the forthcoming proposed regulations. Complete instructions on submitting comments are included in the notice.
Photo credit: IRS/YouTube
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