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IRS issues guidance for PFML tax credit based on insurance premiums
The new IRS Notice 2026-28, released August 5, lets employers calculate the section 45S credit using qualifying insured PFML premiums instead of tracking employee wages taken on leave.
Employers can now claim a federal tax credit for paid family and medical leave insurance premiums, not only for wages paid to workers while on leave. The IRS outlined the approach in Notice 2026-28, issued August 5, providing operational guidance for a section 45S credit that Congress made permanent last year via the One Big Beautiful Bill Act, signed July 4, 2025.
The notice adds a premium-based calculation method for employers using insured PFML arrangements. Under this option, employers can elect to base the credit on premiums paid for qualifying leave insurance policies, which the IRS says avoids the need to track wages tied to employees who took leave.
The credit continues to range from 12.5% to 25% of qualifying wages paid during leave, covering up to 12 weeks per qualifying employee per tax year, with employers choosing either the wage-based method or the premium-based method. The IRS guidance also explains how to allocate qualifying premiums and how to choose between the two approaches.
Treasury Secretary Scott Bessent said in a statement that the permanent credit expansion is meant to encourage businesses, especially small businesses, to offer paid leave without forcing workers to choose between caregiving and pay. The OBBBA also broadened who can qualify, including employees with at least six months of service, down from the prior one-year requirement, and part-time workers who customarily work at least 20 hours per week. The guidance notes that employers in states with existing PFML mandates can count state-required leave toward credit eligibility, but they cannot count it toward the credit.