Treasury and the IRS issued Notice 2026-28 explaining the expanded §45S employer credit for paid family and medical leave. Beginning in 2026, the credit becomes permanent and broader. The revised rules can cover employees with as little as six months of service, and qualifying employees can include certain part-time workers who customarily work at least 20 hours per week.
Employers also have a new way to qualify. Instead of basing the credit only on wages paid while an employee takes qualifying leave, an employer may elect to determine the credit based on premiums paid for qualifying paid-family-and-medical-leave insurance. The credit generally ranges from 12.5% to 25% of qualifying wages, subject to the statutory requirements. The guidance also coordinates the federal credit with state and local paid-leave mandates.
The written leave policy is the gating item, and 2026 is the first full year under the permanent rules, so review client policies against the amended §45S requirements before promising the credit. For employers buying paid-leave insurance rather than self-funding, model the new premium election against the wage method; employers with few actual leave-takers often do better on premiums. And remember the offsets: no deduction for wages or premiums equal to the credit claimed, and state-mandated paid leave counts toward eligibility but not toward the credit amount.
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For more tax developments, visit the Western CPE eTax Alerts page at westerncpe.com/etax-alerts/.
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